Aerospace &
Defense Country
Profiles
February 2017
Aerospace and Defense Country Profiles
Methodology
Objective
To identify the Aerospace and Defense (A&D) market size, key initiatives, regulations, market scenario, and
defense spend for the United Kingdom (UK), India, Middle East, the United States (US), Japan, China,
Germany, Brazil, Mexico, South Korea, Singapore, Canada, France, and Italy.
Current update—Update the defense spend or defense budget for G5 countries — The United Kingdom (UK),
the United States (US),Germany, Canada, and Australia and G22 countries — Japan, India, and Saudi Arabia.
Approach
Scope
— Commercial Aviation (CA) and
Defense market/industry for the below
listed countries:
– United Kingdom (UK)
– India
– Middle East
– United States (US)
– Japan
– China
– Germany
– Brazil
– Mexico
– South Korea
– Singapore
– Canada
– France,
– Italy
– Australia
— Sources used:
– Databases: Thomson One
– Secondary sources: Bloomberg, IDC, Financial Times, The Wall
Street Journal, Reuters, Defense news, Defense world, The
Diplomat, Globalsecurity.org, The Guardian, ipolitics, Global
News, National Post, Deutsche Welle, CNN, Economic Times,
Morningstar, ADS publication, IATA, Aviation Week, PR
Newswire, Sputnik international, PWC website, EY website, HIS
Janes, CAPA website, etc.
– Other reports published by SIPRI, NATO, World Bank, Mckinsey,
GOV.UK, US Department of Defense (DoD), Government of
Canada, Japan Ministry of Defense, etc.
— Approach:
– Step 1: To analyze various sources and reports to identify the
commercial aviation market size, defense budgets announced
and defense expenditure, key areas of growth for the countries
listed in the scope.
– Step 2: To highlight key initiatives taken and announcements
made by the government and key players of each country
– Step 3: To highlight key areas of investment and focus
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
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2
Contents (1/2)
Page
Executive summary
5–7
— United Kingdom (UK)
8–13
— India
14–20
— Middle East
21–27
— United States
28–31
— Japan
32–37
— China
38–41
— Germany
42–47
— Brazil
48–51
— Mexico
52–55
— South Korea
56–60
— Singapore
61–63
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
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3
Contents (2/2)
Page
— Canada
64–69
— France
70–75
— Italy
76–79
— Australia
80–82
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
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thirddoes
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nor International
does KPMG International
provides no client
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4
Aerospace and Defense Country Profiles
Executive Summary — Commercial Aviation (1/2)
United Kingdom (UK)
Commercial Aviation Market
2014 — GBP14.5 Billion
2020F — GBP21.5 Billion
Key Observation
The UK aerospace industry accounts for 17percent share of the global aerospace market in
terms of manufacturing and R&D.
Japan
Aerospace Industry Market
2014 — US$16,503 Million
2015 — US$17,328 Million
Key Observation
Japanese manufacturers such as Mitsubishi
Heavy Industries and Kawasaki Heavy Industries
are involved in supplying spares and parts to
leading commercial aircrafts and OEMs.
Brazil
Number of Air Passengers
2015 — 170 Million
2034F — 272 Million
Key Observation
The boom in the Brazilian Aerospace Industry in
the past years has seen the country become well
integrated into the global supply chain.
India
Commercial Aviation Market
2014 — INR168.9 Million
2020F — INR450 Billion
Key Observation
India is currently the ninth-largest commercial
aviation market in the world, with an estimated
market size of US$16 billion.
China
Commercial Aircrafts Fleet
2014 — 2570 aircrafts
2034F — 7210 aircrafts
Key Observation
China has emerged as the world’s second-largest
aviation market. According to Boeing, the country
is expected to triple its aircraft demand by 2034
with an overall spend of US$950 million.
Mexico
Key Observation
OEMs are focusing on fuel-efficient and
environment-friendly products to gain a
competitive advantage. Aerospace companies
are manufacturing a substantial portion of their
new fuel efficient products in Mexico.
Middle East
Commercial Aircrafts Fleet
2015 — 1100 aircrafts
2034F — 2950 aircrafts
Key Observation
Middle East's geographical favorable location
coupled with growing investment in infrastructure
is expected to fuel air traffic in the region.
Germany
Freight Traffic
2014 — 2.3 tons
2030F — 7.3 tons
Key Observation
According to German trade and investment, the
country ranked second in terms of Global
Aviation Manufacturing Attractiveness Index.
South Korea
Registered Civil Aircrafts
2015 — 724 aircrafts
2019F — ~1000 aircrafts
Key Observation
Commercial aircraft manufacturing and MRO
market is expected to grow at a CAGR of 16.53
percent and 4.63 percent respectively for the
period 2014–18.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
5
Aerospace and Defense Country Profiles
Executive Summary — Commercial Aviation (2/2)
Singapore
Aerospace Industry
2012 — SG$8.7 Billion
Key Observation
Singapore’s aerospace industry has grown at an
average rate of 10 per cent in the last two
decades, with majority of the companies involved
in MRO activities.
Canada
Aerospace Industry
2011 — CA$22.6 Billion
2014 — CA$27.7 Billion
Key Observation
The Canadian aerospace industry primarily
focuses on civil aircraft manufacturing and
invests approximately 20 percent of its
manufacturing activity in R&D.
France
Commercial Aviation Market
2010 — EUR27.4 Billion
2014 — EUR39.1 Billion
Key Observation
In 2015, the commercial aviation sector
accounted for 77 percent of the industry turnover
and 83 percent of the exports.
Italy
Aerospace Industry Turnover
2014 — US$20 Billion
Key Observation
The Italian aerospace and defense industry is
highly fragmented and consists of ~300 small-tomedium sized enterprises, located in 5 main
industrial clusters.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
6
Aerospace and Defense Country Profiles
Executive Summary — Defense
United Kingdom (UK)
Spend/Budget
2015–16 — GBP35.1 Billion
2020–21F — GBP39.7 Billion
Key Observation
In 2015, the UK government announced its plans
to increase defense spending by 0.5 percent
above inflation every year until 2021.
United States (US)
Spend/Budget
2016 — US$521.7 Billion
2021F — US$585.2 Billion
Key Observation
FY17 budget focuses on technological
superiority, resizing of the ground forces, reforms
of health care, retirement, and family programs.
India
—
Spend/Budget
2016–17E — INR2,49,099 crores
2017–18F — INR2,62,390 crores
Key Observation
India is among the world's top five defense
spenders with its military budget at US$50.7
billion, overtaking Saudi Arabia and Russia.
Japan
Saudi Arabia
Spend/Budget
2016E — SAR205 Billion
2017F — SAR191 Billion
Key Observation
Saudi Arabia plans to increase its defense
spending by around US$60 billion a year by 2020
from its present US$49 billion.
Germany
Spend/Budget
2016 — JPY4.86 Trillion
2017E — JPY5.13 Trillion
Key Observation
In FY16, JPY4.86 Trillion was approved by the
Cabinet towards the defense base budget.
Spend/Budget
2016E — EUR35.0 Billion
2020F — EUR39.2 Billion
Key Observation
Germany is currently focused on boosting its
defense spending to meet NATO’s defense
spend target of 2 percent of the GDP.
Australia
Canada
Spend/Budget
2016–17E — CA$18.6 Billion
2018–19F — CA$19.5 Billion
Key Observation
In FY16-17 budget, Department of National
Defense (DND) proposed to reallocate funding of
CA$3.7 billion for large-scale capital projects
from the 2015–16 to 2020–21 budget.
Spend/Budget
2016–17E — AU$32.4 Billion
2025–26F — AU$58.7 Billion
Key Observation
Australia's defense spending will increase from
AU$32.4 billion in FY16–17E to AU$58.7 billion in
FY25–26F, growing at a CAGR of 6.8 percent.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
7
United Kingdom
(UK)
Aerospace and Defense Country Profiles
UK defense market (1/3) (updated )
UK defense spend, 2015–16 to 2020–21F (in GBP
billion)
UK defense spend, by expenditure type, for 2015–16 (in
percentage)
Military Manpower
39.7
11.5
38.1
37.0
36.0
35.1
7.5
35.1
Property and Other Equipment
18.4
15.1
Single Use Military Equipment
Infrastructure Costs
Total Spend =
GBP35.1
billion
11.9
2015–16 2016–17F 2017–18F 2018–19F 2019–20F 2020–21F
Equipment Support Costs
26.5
4.3
4.8
Civilian Manpower
Inventory
Other
Key Observations
— According to the UK Defense in Numbers report, the UK was the fifth-largest defense spender in the world with defense expenditure of about
GBP35.1 billion in 2015–16.
–
In 2015, the government announced its plans to increase defense spending by 0.5 percent above inflation every year until 2021. It
will continue to meet NATO’s target to spend 2 percent of GDP on defense for the rest of the decade.
–
The increase in budget will enable the Ministry of Defense (MoD) to invest in stronger defense areas with increase in the number of
ships, planes, troops at readiness, better equipment for Special Forces and increase in investment in cyber.
Source(s): Defense budget increases for the first time in six years, GOV.UK website; 01 April 2016; UK Defense in Numbers, GOV.UK website, September 2016; Ministry of Defense Annual Report and Accounts 2015–2016, GOV.UK website, 14 July 2016; UK Defense in Numbers, GOV.UK
website, September 2015; Impact of the Strategic Defense and Security Review on the Equipment Plan, GOV.UK website, 14 July 2016; as accessed on 13 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
9
Aerospace and Defense Country Profiles
UK defense market (2/3) (updated)
Key Expenditure Highlights
GBP7.6 billion spend on investment in new
equipment and infrastructure in 2015–16
21.7
10.4
9.1
7.7
7.4
4.5
IST&R*
Combat Air
2
Submarines
— By 2025 Ministry of Defense (MoD) aims to spend GBP178
billion on equipment and equipment support, GBP12 billion
more than in plans prior to the 2015 SDSR1.
9.6
Weapons
2.1 percent of GDP spent on defense in
2015
Land
Equipment
£
Ministry of Defense (MoD) planned equipment support
spend by 2025 (in GBP billion)
£
Helicopters
GBP0.4 billion spend on military
operations in 2015–16
— According to Ministry of Defense (MoD), the UK is the only one
of the five countries that meet North Atlantic Treaty
Organization (NATO) guideline to spend 2 percent of GDP on
defense. It has the second-largest budget in NATO.
Air Support
£
GBP539 UK spend
per person on
defense in 2015–16
Ships
GBP1.7 billion
Research and
Development in 2014–
15
— In line with its announced plans of increase in defense spending
by 0.5 percent above inflation every year until 2021, on 1 April
2016 the government increased defense budget by GBP0.8
billion from the 2015–16 baseline of GBP34.3 billion to GBP35.1
billion.
Note(s): *IST&R – Intelligence, Surveillance, Target Acquisition & Reconnaissance, 1Strategic Defence and Security Review (SDSR)
Source(s): Defense budget increases for the first time in six years, GOV.UK website; 01 April 2016; UK Defense in Numbers, GOV.UK website, September 2016; Ministry of Defense Annual Report and Accounts 2015–2016, GOV.UK website, 14 July 2016; UK Defense in Numbers, GOV.UK
website, September 2015; Impact of the Strategic Defense and Security Review on the Equipment Plan, GOV.UK website, 14 July 2016; as accessed on 13 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
10
Aerospace and Defense Country Profiles
UK defense market (3/3)
The UK Defense Market
Key Domestic Players — Defense
— According to UK Trade and Investment, the UK is the secondlargest exporter of defense products and services, with orders
accounting for approximately GBP116 billion between 2005
and 2014.
— In 2014, the global defense export market was estimated at
approximately GBP50 billion (US$83 billion). The UK’s share
of the global market accounted for 16 percent, valued at
GBP8.5 billion (US$13.2 billion).
— In 2014, by geographic customer destination, the UK’s largest
markets for defense and security exports were Middle East,
North America and Asia-Pacific.
— The UK defense manufacturing currently accounts for
approximately 10 percent of the total manufacturing in the UK.
– The UK defense industry is highly fragmented with over
9,000 defense companies generating employment to
approximately 300,000 personnel.
– BAE Systems — the UK’s largest defense company —
currently employs 40,000 personnel domestically.
The UK defense export, by geography, 2014**
(in percentage)
10
11
13
66
Middle East
North America
Asia Pacific
Europe
Company
Revenue
(GBP million)
Products/services
Rolls-Royce
2,069.0*
Aircraft engine and population system
GKN
Aerospace
2,226.0
(601)*
Aircraft engine components and sub-systems,
aerostructures and special products
16,637.0
Commercial and military avionics (engine and
flight controls, cabin and cockpit systems) and
aftermarket support services. In addition,
building aircraft carriers with Babcock
International
Meggitt
539.4
Extreme environment components and smart
sub-systems for aerospace
Cobham
1,852.0
Aircraft components and communication gear
BAE Systems
Ultra
Electronics
117.0
Electronics systems, control and
instrumentation solutions
Babcock
International
3,547.6
Warships, navy aircraft carriers, Navy and
MRO services
Rolls-Royce
2,069.0*
Aircraft engine and population system
GKN
Aerospace
2,226.0
(601)*
Aircraft engine components and sub-systems,
aerostructures and special products
Note(s): *Revenue for defense segment, Most of the given revenues are for the year 2014. **100% values for defense export not mentioned in the source
Source(s): “UK Defence and Security Export statistics – 2014, 14 July 2015, UK Trade and Investment; UK Defence in Numbers, August 2015, Ministry of Defence; Lockheed remains world's biggest defence firm, Boeing comes next, 15 December 2015, International Business Times website; UK
Manufacturing Statistics, The Manufacturer website, accessed 26 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
11
Aerospace and Defense Country Profiles
UK commercial aviation market (1/2)
Aerospace industry market size, 2014
Includes
Defense
and Space
100%=
GBP29
billion
The UK aerospace industry
is the largest in Europe
Commercial aviation market forecast, 2014–20 (in
GBP billion)
21.5
~GBP
14.5
billion
Commercial
aviation (2014)
14.5
2014
2020F
Key Observations
— The UK aerospace industry accounts for a 17 percent share of the global aerospace market in terms of manufacturing and R&D. The exports
contribute about 70 percent to the overall aerospace revenue.
–
The industry has witnessed a growth of more than 30 percent since 2010, owing to increasing demand from emerging markets (such
as Middle East and China) and a joint initiative by the government and industry players to enhance investments into technology and
skills.
–
The commercial aerospace sector has been growing at a relatively fast rate as compared to defense since 2010, with y-o-y growth of
6–7 percent.
— The UK commercial aerospace industry witnessed a growth of 25 percent in 1Q14–1Q15 owing to increasing air travel.
–
According to Ascend Flight Global, the number of passengers is expected to reach 218 million within 20 years, resulting in
investment by UK-based airlines in new fleet with an overall spend of US$75 billion.
–
According to Aerospace, Defense and Security (ADS) group, about 1,00,000 commercial aircrafts (including large civil airlines,
business jets, regional aircraft and helicopters) are expected to be delivered globally by 2032, creating a potential market of US$600
billion for the UK aerospace industry.
Source(s): “UK on course for aerospace boom as growing demand for air travel set to boost passengers numbers by 80% by 2034,”This is money; “THE GREAT BRITISH TAKE OFF,” adsgroup.org.uk; “Brookson Economic Outlook 2015: Aerospace and defense sector,” Broonkson, accessed 10
December 2015; “Commercial aerospace industry reports record year,” Adsadvance.co.uk, accessed 09 December 2015; “Reach for the skies,” ADS Publication; “Why aerospace and defense are Britain's engines of growth,” theguardian.com; “Britain acts to protect £25bn-a-year aerospace
industry,” The telegraph, 03 September 2015; “UK's high-flying aerospace sector gets a lift with deliveries hitting a record,” The Telegraph, accessed 08 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
12
Aerospace and Defense Country Profiles
UK commercial aviation market (2/2)
Aerospace Industry Domestic Players
Company
name
RollsRoyce
GKN
Aerospace
revenue (GBP
million)
Major category
8,898.7 (6,837)*
Engine and population system
6,982.0
(1,669.5)*
Engine components and sub-systems,
aerostructures and special products
BAE
Systems
8,318.5 (800.8)*
Commercial avionics (engine and flight
controls, cabin and cockpit systems) and
aftermarket support services
Meggitt
1280.6 (741.2)*
Extreme environment components and
smart sub-systems for aerospace
Cobham
407.4 (187.4)*
Aviation services
Ultra
Electronics
117.0
Electronics systems, control and
instrumentation solutions
Energetic sub-systems for the aerospace
sector
Chemring
474.9**
Marshall
1,426 (307)*
Aerospace engineering and support
solution and services
BrittenNorman
13.2*
Domestic civil aircraft manufacturer
Aerospace Industry Domestic Players
The UK government and aerospace industry would jointly invest
about GBP2 billion in the next seven years for further development
of the aerospace sector. The investment would include the
formation of the UK Aerospace Technology Institute (ATI), helping
the industry and academic researchers develop next-generation
aircrafts.
ATI-Funded Projects
Total investment
Project description
GBP14 million
•
•
Led by Rolls-Royce
High-tech research project to develop highpower gearboxes for future jet engines
GBP14 million
•
•
Led by Airbus
To design improved landing gear for future
aircrafts, including electric taxi technology
GBP10 million
•
•
GE aviation systems
To develop high-quality electronics that can be
operated in harsh environment
•
•
Led by Rolls-Royce
Involves joint contribution of Rolls-Royce and
suppliers to develop new engine concepts to
improve environment
•
•
Led by Airbus group
To improve aircraft power management and
replace hydraulic systems with electric control
systems to reduce CO2 emissions
GBP10 million
GBP9 million
Note(s): *Revenue for commercial aviation segment, **Overall revenue of the company
Source(s): “UK on course for aerospace boom as growing demand for air travel set to boost passengers numbers by 80% by 2034,”This is money; “THE GREAT BRITISH TAKE OFF,” adsgroup.org.uk; “Brookson Economic Outlook 2015: Aerospace and defense sector,” Broonkson, accessed 10
December 2015; “Commercial aerospace industry reports record year,” Adsadvance.co.uk, accessed 09 December 2015; “Reach for the skies,” ADS Publication; “Why aerospace and defense are Britain's engines of growth,” theguardian.com; “Britain acts to protect £25bn-a-year aerospace
industry,” The telegraph, 03 September 2015; “UK's high-flying aerospace sector gets a lift with deliveries hitting a record,” The Telegraph, accessed 08 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
13
India
Aerospace and Defense Country Profiles
Indian defense market (1/4) (updated)
India defense budget, FY16–17 vs.
FY17–18 (in INR crores)
2,62,390
Key Observations
— The annual defense budget for FY16–17 amounted to INR2,49,099 crores.
–
2,49,099
In FY17–18 the government announced to allocate INR2,62,390 crores to its
defense budget, an increase of 5.3 percent y-o-y. Majority of this growth is
attributed to 8.1 percent increase in revenue expenditure estimates, due to partial
realization for OROP1 scheme, a recurring cost.
— The ratio between defense expenditure and GDP is declining. In FY16–17, share of defense
budget in the GDP was 1.65 percent, which further declined to 1.56 percent of the GDP for
FY17–18.
FY16-17E
— The Indian Army has the biggest share in defense budget, followed by Air Force and Navy,
DRDO and Ordinance Factories. Majority of Army budget share goes into meeting pay and
allowances of the personnel.
FY17-18F
India defense budget by share of defense services, for FY16–17E vs. FY17–18F (in percentage)
5
16
Army
5
Air Force
FY16–17
Total allocated
Budget = INR
2,49,099 Crores
6 1
14
Navy
52
DRDO*
22
22
FY17–18
Total planned
budget =
INR2,62,390
Crores
57
Ordinance Factories
Note(s): 1 crore = 10 millions, *DRDO — Dfence Research and Development Organisation, 1OROP — One Rank One Pension
Source (s): “India’s Defense Budget 2017-18: An Analysis”, 3 February 2017, Institute of Defence Studies and Analyses website, as accessed on 17 February 2017, “India moves into top five global defense spenders”, 12 December 2016, Financial Times website, as accessed on 17 February
2017, “India's Defense Budget: Trapped In A Straitjacket”, 8 February 2017, Indian defense news website, as accessed on 17 February 2017, “Defense outlook 2017: “A global survey of defense-industry executives”, April 2015, Mckinsey website, as accessed on 17 February 2017, “All About Pay
and Perks: India’s Defence Budget 2016-17”, 3 March 2016, IDSA website, as accessed on 20 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
15
Aerospace and Defense Country Profiles
Indian defense market (2/4) (updated )
— According to ‘2016 Jane's Defense Budgets’ Report by IHS Markit, “India
is among the world's top five defense spenders with its military budget at
US$50.7 billion, overtaking Saudi Arabia and Russia.” India is set to
overtake Britain by 2018, as a result of its modernization plans.
Key Industry Highlights
Potential, third highest defense spending
country by 2018. A defense industry
executives survey suggests US, India and
Middle East as key attractive markets
— In the FY17–18 Union Budget, the government has promised to reduce
income tax from present 30 percent to 25 percent for micro, small and
medium enterprises (MSME’s) with an annual turnover of INR50 crores.
This is expected to benefit around 6,000 MSME’s
supporting organizations such as DRDO, Ordinance Factories and
Defense Public Sector Undertakings.
From a tax perspective, the government is
focused on creating a level-playing-field
for domestic manufacturers
India’s Aerospace industry is
expected to need approximately
200,000 skilled people in next 10
years.
Modernisation Budget Estimates (BE) for Armed
Forces, FY16–17E vs. FY17–18F (in INR crores)
30,885
27,556
— In FY17–18, the government plans to spend INR30,885 crores
in modernization of Air Force, this reflects 12.1 percent y-o-y
increase from FY16–17. However, the modernization budget for
Army and Navy declined by 6.4 percent and 12.1 percent
respectively.
21,323 21,535
18,749 20,148
— The increase in Air Force budget is in-line with the governments
several mega contracts such as Rafale fighters, Apache attack
and Chinook heavy lift helicopters.
FY16–17E
Air Force
FY17–18F
Navy
Army**
Note(s): 1 crore = 10 millions, **Army — Approximate numbers for Army.
Source (s): “India’s Defense Budget 2017-18: An Analysis”, 3 February 2017, Institute of Defence Studies and Analyses website, as accessed on 17 February 2017, “India moves into top five global defense spenders”, 12 December 2016, Financial Times website, as accessed on 17 February
2017, “India's Defense Budget: Trapped In A Straitjacket”, 8 February 2017, Indian defence news website, as accessed on 17 February 2017, “Defense outlook 2017: “A global survey of defense-industry executives”, April 2015, Mckinsey website, as accessed on 17 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
16
Aerospace and Defense Country Profiles
Indian defense market (3/4)
Indian Defense Market Under ‘Make in India’
Strategy
The Indian government, under the leadership of Prime Minister
Narendra Modi, plans to transform the Indian defense
manufacturing sector, from its current position as the world’s
largest importer into a manufacturing powerhouse. The change in
leadership is expected to increase Indian defense spending to
US$620 billion (INR38,000 billion) by 2022.
Key Growth Initiatives
— Aimed at encouraging indigenous manufacture of defense
equipment, the government launched Defense Production
Policy (DPP) in 2011. The key features of the policy are:
– Preference to ‘Buy (Indian)’ and ‘Buy and Make (Indian)’
over ‘Buy (Global)’
– Clear and unambiguous definition of indigenous content
– Provision for maintenance and transfer of technology
(ToT) to Indian partners
— The government revised the foreign direct investment (FDI)
level in the defense industry to 49 percent, encouraging Indian
private companies to form partnership with foreign players,
aimed at tapping the potential US$130 billion military contracts
in the next few years.
— The government envisaged minimum mandatory defense offset
policy aimed at leveraging capital acquisitions and developing
the Indian defense industry.
— In 2014, a large number of defense products, including
parts/components, castings, forgings, were excluded from the
purview of industrial licensing.
Key Public Sector Players* — Defense
Company name
Major category
The Hindustan
Aeronautics Ltd.
— Aircrafts, helicopters, aero-engines, accessories and
avionics
— Major partner for the space programs of ISRO
Bharat
Electronics Ltd.
— Electronic equipment/components for the use of defense
services, such as radars and communication units.
The Bharat Earth
Movers Ltd.
— Ground supporting equipment for armed forces
— Manufacturer of coaches, wagons and trucks for defense
Garden Reach
Shipbuilders &
Engineers Ltd.
— Warships, fast and powerful patrol vessels
— Commercial vessels
Goa Shipyard Ltd.
— Advanced offshore patrol vessels, survey vessels,
seaward defense boats, torpedo recovery vessels, tugs,
etc.
The Bharat
Dynamics Ltd.
— Guided missile systems
BrahMos
Aerospace Pvt. Ltd.
— A joint venture between Defense Research and
Development Organisation and NPO Mashinostroyenia to
manufacture and develop BHRAMOS supersonic missiles
Mazagon Dock Ltd.
— Submarines and warships
The Hindustan
Aeronautics Ltd.
— Aircrafts, helicopters, aero-engines, accessories and
avionics
— Major partner for the space programs of ISRO
Note(s): *Other players include Mishra Dhatu Nigam Ltd. (MIDHANI) and Hindustan Shipyard Ltd.
Source(s): “India defense market overview, 2015, Pennsylvania Department of Community and Economic Development; defense manufacturing, Make in India website; The seven homegrown firms fighting over India’s $620 billion defense market, 20 February 2015, Quartz India website,
accessed 21 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
17
Aerospace and Defense Country Profiles
Indian defense market (4/4)
Changing Landscape — Regulations
Key Public Sector Players* — Defense
— The government has been changing the policies aimed at
gaining access to technologies and focusing on the
development of an indigenous production base.
— FDI policy:
– Under the FDI policy, the government has allowed up to
49 percent investments through the government route and
above 49 percent on a case-to-case basis.
– It allows investments of up to 24 percent by foreign
portfolio investors/FIIs under the automatic route.
– It has removed conditions such as the requirement of
‘single largest Indian ownership’ and ‘lock-in period within
FDI’ for the defense sector.
– Under the new policy, the defense industry is subjected to
licenses under the Industries (Development and
Regulation) Act, 1951.
— Sector policy:
– The government has been revising the policies related to
procurement, offset requirements, granting licenses and
establishing joint ventures (JVs) to encourage the
participation of new private players in the defense sector.
Changing Landscape — Private Players
Many new players, such as Hero Motor Corp, Mahindra & Mahindra
(M&M), Anil Dhirubhai Ambani Group and Kalyani Group, have
shown keen interest in the ‘Make in India’ strategy for defense
along with established players, such as Tata. In 2015, the
government granted 56 defense manufacturing licenses to private
players, including companies such as M&M, Reliance and Bharat
Forge to set up production units for major defense equipment.
Company name
Major category
Tata Group
— Upgrade of tanks (t-72 and t-90)
Reliance Defense
— Equipment ranging from medium tanks and howitzers
to missiles, sensors and torpedoes
— Cryogenic technology products
— Helicopters/parts
Bharat Forge
(Kalyani Group)
— Manufacture, maintenance and overhaul of torpedoes,
missiles and mines, tanks, off-road military vehicles and
hovercrafts
— Manufacturing of simulators for the armed forces,
ammunition and fuze-setting devices
M&M
— Naval systems, such as torpedoes, sea mines and
boats
— Mahindra Telephonics Integrated Systems and Tech
Mahindra Ltd. receiving defense permits
Dynamatic
Technologies
— Unmanned aerial vehicles
MKU
— Bullet-proof equipment, Night vision equipment
Himachal Futuristic
Communications
Ltd.
— Assembling electronic warfare systems, radars and the
design, development and manufacturing of aircraft,
including choppers.
Tata Group
— Upgrade of tanks (t-72 and t-90)
Reliance Defense
— Equipment ranging from medium tanks and howitzers
to missiles, sensors and torpedoes
— Cryogenic technology products, Helicopters/parts
Note(s): Other players include Narendra Explosive Ltd. from Saharanpur, Noida-based OIS Aerospace, Punj Lloyd Ltd. and Gurgaon-centered Metaltech Motor Bodies Ltd.
Source(s): India defense market overview, 2015, Pennsylvania Department of Community and Economic Development; defense manufacturing, Make in India website; The seven homegrown firms fighting over India’s $620 billion defense market, 20 February 2015, Quartz India website; Boost to
Make in India: Modi govt awards 56 defense licences to private cos like Mahindra, Tata & Pipavav, 27 June 2015, The Economic Times; Strengthening 'Make in India': 19 private companies get DIPP nod to make defense products, 10 October 2015, The Economic Times, accessed 24 December
2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
18
Aerospace and Defense Country Profiles
Indian commercial aviation market (1/2)
Commercial aviation market
Commercial aviation market forecast,
2014–20F (in million passenger)
US$16
billion
India is the ninth-largest commercial
aviation market in the world with a
market size of approximately US$16
billion.
Aircraft fleet size, 2014–20F
(Aircrafts operated by carriers)
450
159.3
168.9
2013
2014
1000
450
2020F
2014
2020F
Key Observations
— India is currently the ninth-largest commercial aviation market in the world, with an estimated market
MRO market size, 2014–20
size of US$16 billion. It aims at becoming the third-largest market in the world by 2020.
(in US$ million)
– In 2015, the total passenger traffic was estimated at 190.1 million, representing a y-o-y increase
of 12.5 percent. By 2020, the passenger traffic at Indian airports is expected to increase to 450
1,148.2
million.
– In 2006–15, the domestic passenger traffic increased at a CAGR of 11.8 percent and is estimated
to reach 209 million by 2017.
– In 2006–15, the international passenger traffic increased at a CAGR of 9.5 percent and is
369.7
estimated to reach 60 million by 2017. The total freight traffic also increased at a CAGR of 6.7
percent over 2006–15.
— The Indian government has announced airport infrastructure investment of US$11.4 billion under the
12th Five Year Plan (2012–17).
2014
2020F
– Aimed at encouraging private participation in airport sector, six airports across major cities are
being developed under the Public-Private Partnership PPP model. The Airports Authority of India
(AAI) aims at developing approximately 250 airports across the country by 2020.
Source(s):Aerospace companies in India, Amritt Ventures website; Indian Aviation Industry, November 2015, Indian Brand Equity Foundation; Indian aviation sector has the potential to be number one globally by 2030, says the Indian Aviation report by FICCI-KPMG, 13 March 2014, KPMG
website; Indian Aviation Sector – 2014 Highlights, India Aviation website, accessed 24 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
19
Aerospace and Defense Country Profiles
Indian commercial aviation market (2/2)
Aerospace Industry Domestic Players
Company
name
Revenue
(US$ million)
Major category
Hindustan
Aeronautics
Limited
(HAL)
2,800 (2012)
— Collaborates with American, French,
Indian, Israeli, Russian and the UK
agencies to design, fabricate and
supply civilian and military aircraft
Bharat
Electronics
Ltd.
NA
— Offers various products for
aerospace, such as radars, avionics
and weapon systems
Electronic
Corporation
of India Ltd.
NA
— Offers various products for
aerospace and security
Samtel
NA
— Avionics
Tata
Manufacturin
g Solutions
Ltd.
NA
— Floor beams for the Boeing 787
Dreamliner
Taneja
Aerospace
NA
— Machining and assembly
Key Observations
— Foreign aerospace companies in India need to have approximately 74
percent of domestic ownership if operating in the defense sector.
— Global companies such as Airbus, GE, Honeywell, Bell Helicopter, Boeing,
Dassualt, Lockheed Martin, Sukhoi and Rolls Royce provide products and
services through foreign sales or via joint manufacturing with HAL.
Key Growth Initiatives
— In 2015, the government finalized the new aviation policy and
revised the international flying norms for domestic carriers. It is
also expected to remove the ‘5/20’ norms (5 years old and a
minimum fleet size of 20 aircrafts) for domestic carriers.
— In November 2015, the Airport Authority of India (AAI) announced
its plans to revive and operationalize approximately 50 airports in
India over the next 10 years, aimed at improvising regional and
remote air connectivity.
— The Indian government, in its draft for inputs from stakeholders
toward civil aviation policy, has proposed raising FDI limit in
domestic airlines from 49 percent to over 50 percent, along with
reforms such as tax incentives for airlines, incentives for travelers
flying to small towns at affordable rates and easing norms for
domestic carriers to operate abroad. In 2015, the Directorate
General of Civil Aviation (DGCA) provided approval to Air India’s
maintenance, repair and overhaul (MRO) unit.
— The government in its draft, has proposed to offer international
airports in Kolkata, Chennai, Jaipur and Ahmedabad on
management contract. The government has also approved
proposal to set up a second airport in Gujarat and the National
Capital Region (NCR) region.
— FDI policy:
– Currently, 100 percent FDI is permitted for Greenfield airport
projects under the automatic route.
– Up to 74 percent FDI is permitted for existing airport projects
under the automatic route and between 74 percent and 100
percent under the government approval route.
— Sector policy:
– The AAI is encouraging investments at airports under the
PPP policy and has been providing incentives.
Source(s): Aerospace companies in India, Amritt Ventures website; Indian Aviation Industry, November 2015, Indian Brand Equity Foundation; Indian aviation sector has the potential to be number one globally by 2030, says the Indian Aviation report by FICCI-KPMG, 13 March 2014, KPMG
website; Indian Aviation Sector – 2014 Highlights, India Aviation website, accessed 24 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
20
Middle East
Aerospace and Defense Country Profiles
Middle East defense industry (1/4)
Middle East defense spend, 2013–19F (in
billion)
Key Observations
204.9
161.7
172.7
2013
2014
2019F
Middle East military spend, by country, 2014 (by
percentage)
13.8
5.1
5.1
43.2
8.5
12.2
12.1
Saudi Arabia
Turkey
UAE
Israel
Oman
Iraq
Others*
— Middle East is one of the most competitive emerging defense markets in
the world. The market demand is driven by an increasingly tense
geopolitical environment.
– The countries in the ME region have surplus capital accumulated over
the pervious years. Therefore, the recent dip in oil prices is unlikely to
affect the defense budget of these countries.
Equipment: The demand for ballistic anti-missile systems and newgeneration warplanes is high. Moreover, ME buyers are focusing on military
electronics and cyber systems, helicopters for special forces teams and light
tactical armored vehicles with weapons systems.
Major countries:
— Saudi Arabia, Turkey and the UAE account for about 67 percent of the
overall ME defense spend. In 2014, Saudi Arabia and the UAE imported
military equipment worth US$8.6 billion, which in total is more than the
combined defense import of Western Europe.
— Saudi Arabia witnessed an increase of 21 percent in 2014 on defense
spend, owing to rising concern about protecting its monarchy and the
country’s oil assets from extremist attacks.
– The increase has greatly encouraged spending on military hardware,
infrastructure and training.
– By 2020, the country is expected to become the fifth-largest defense
spender, driven by 27 percent increase in budget despite low oil price
environment.
— In 2015, the UAE announced to double its defense spending on military
imports. The country holds second-biggest position in defense import in
Middle East.
Note(s): *Others countries includes Iran, Kuwait, Lebanon, Jordan and Bahrain
Source(s):SIPRI Military Expenditure Database, accessed on 28 December 2015, The Biggest Military Budgets As A Percentage Of GDP, 25 June 2015, Forbes; Middle East defense spending fuels security dilemma, 14 January 2015, Global Risk Insights; Saudi Arabia outpaces India to become
top defense importer: IHS, 08 March 2015, Reuters accessed January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
22
Aerospace and Defense Country Profiles
Middle East defense industry (2/4)
Key Regulations and Requirements For Saudi Arabia and the UAE
Saudi Arabia
1
The country remains
closed for FDI
2
Encouraging indirect
offset
In April 2009, the Saudi Arabian General Investment Authority (SAGIA), a body responsible for approving foreign
investment projects, included defense in its ‘negative list’ of sectors — a ‘negative list’ is issued by SAGIA to
prohibit FDI in select sectors.
— The Deputy Minister of Defense regulates the ‘Economic Offset Program,’ which requires reciprocal
agreements to be part of all major arm deals. This program helps minimizing the cost when engaging in trade
deals and also helps in the development of the defense sector. Investors are expected to adhere to specific
offset rules, including the obligation to invest 35 percent of their contract value back into the economy.
— Any import trade in the KSA mandates a certain level of offsetting enabled by the transfer of technology and the
‘Saudization’ process.
— The country is expected to benefit from the offset program with an expected investment of US$12.6 billion by
2020.
The UAE
1
Stringent offset
requirements for
foreign companies
2
Stringent offset
requirements for
foreign companies
— The ‘Offset Program Bureau (OPB)’ is a government body responsible for implementation of offset polices in
the UAE. According to the OPB, the suppliers are required to meet the following offset prerequisites:
– Defense contracts valued at more than US$10 million
– Establishment of JVs with local business partner in a five-year period
– The JVs to yield profit margin equivalent to 60 percent of the contract value within seven years.
— About 40 JV projects were launched till 2014 in the defense sector, and the country is expected to gain offset
program benefits from the estimated investment of US$12.2 billion by 2020.
The UAE encourages foreign firms to share proprietary information with domestic defense firms to enhance its
indigenous capabilities. In addition, the defense contractors are expected to get priority if they increase domestic
employment, skillset and capacity in key industries.
— For example, in September 2015, Reliance Defense Ltd., a wholly owned subsidiary of Reliance Infrastructure,
signed an agreement with Emirates Defense Industries for manufacturing, services, knowledge transfer and
technology development from the UAE.
Source(s):2014 NTE Report on FTB United Arab Emirates, Date: NA, Office of the United States Trade Representative, Department of State: 2014 Investment Climate Statement, June 2014, U.S. Department of State; UNITED ARAB EMIRATES: INVESTMENT CLIMATE STATEMENT 2015,
June 2015, U.S. Department of State; R-Infra arm, UAE firm agree to partner in defence sector, 29 September 2015; Study expects MENA military spending to reach $920b by 2020, 30 April 2014, Middle East Monitor; Idex 2015: UAE defence industry helps to diversify economy, 26 February
2015, The National, accessed on January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
23
Aerospace and Defense Country Profiles
Middle East defense industry (3/4)
Defense Industry Domestic Players
Headquarter
Revenue
(US$ million)
Aselsan
Turkey
1,141.0
Turkish Aircraft
Industries
Corporation
Turkey
971.3
Structural components, fighters, light transport/maritime patrol/surveillance aircrafts, trainers,
general purpose helicopters, unmanned aerial vehicles and satellites
Makina Ve Kimya
Endustrisi Kurumu
Turkey
354.8
Ammunition of light and heavy weapons, heavy weapon systems, artillery, bombs, mines,
explosives, powders and pyrotechnic products, and rockets for the Turkish armed forces
Roketsan
Turkey
318.0
Land systems, air defense systems, naval systems, precision guided missiles, ballistic protection
systems, etc.
FNSS Savunma
Sistemleri A.Ş.
Turkey
223.2
Tracked armored vehicles, wheeled armored vehicles, combat engineering vehicles and weapon
systems
Note: JV between Nuraol Holding and BAE Systems, Inc.
Israel Aerospace
Industries
Israel
3,827.0
Defense systems, missiles and loitering weapons; satellites and space systems; special mission
and early warning aircrafts; unmanned aerial systems; radar and electronic intelligence; command
and control strategic systems; cyber solutions
Rafael Advanced
Defense Systems
Ltd.
Israel
6,594.0
Air superiority systems, land and naval systems, Air&C4ISR systems and manor and technologies
Israel Military
Industries
Israel
464.2
Munition systems, rocket system, land system, advanced systems and small caliber
ammunition
Company name
Major category
Involved in designing and development of indigenous systems in the fields of defense electronics
using high-end technologies
Note(s): *Companies highlighted in orange holds significant position in the list of top 100 Aerospace & Defense Companies.
Source(s):Aselsan 2014 Annual Report, Aselsan website; Capital IQ Data base, accessed on January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
24
Aerospace and Defense Country Profiles
Middle East defense industry (4/4)
Defense Industry Domestic Players
Headquarter
Revenue
(US$ million)
Israel
363.8
Military aircraft and helicopter systems, helmet mounted systems, commercial aviation systems
and aerostructures, unmanned aircraft and unmanned surface vessels, land vehicle systems,
command, control, communications, computer and intelligence (C4I) systems, etc.
Abu Dhabi Ship
Building
The UAE
190.8
Naval ship building, small boat construction, services and combat systems integration
Emirates Defense
Industries Company
The UAE
NA
Company name
Elbit Systems Ltd.
Major category
Formed with the integration of Mubadala Development Company, Tawazun Holding and Emirates
Advanced Investments Group so as to transform combined capabilities of the UAE’s defense
industries into a single integrated platform
Source(s):Aselsan 2014 Annual Report, Aselsan website; Capital IQ Data base, accessed on January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
25
Aerospace and Defense Country Profiles
Middle East commercial aviation industry
Commercial aircraft fleet in
Middle East 2015–34F
1,850
new air crafts
Passenger traffic (RPKs),
2014–34F (in billion)
Aircraft fleet size, 2014–20F (Aircrafts operated
by carriers)
8.8
2950
~2000
4.6
1100
2015
~500
2034F
2014
2034F
2015
2025F
Key Observations
— According to Boeing, the country is expected to triple its aircraft demand by 2034 with an overall requirement of 3180 new aircrafts (includes
fleet of passenger and freighter aircraft) , valued at US$730 million by 2034. The commercial aviation demand is mainly driven by the following
factors:
– The air traffic is expected to grow at a CAGR of 6 percent for the period 2015-2034 and this growth is well above the world average
CAGR of 4.6 percent.
– The favorable geographical location, connecting many parts of the world with one-stop flight, coupled with growing investment in
infrastructure is expected to fuel air traffic in ME region.
— Middle East Region witnessed y-o-y revenue passenger kilometer (RPK) growth of 11.4 percent on international growth for the period of 20142015 and accounts for 8 percent of the global revenue passenger kilometers (RPK).
— The commercial aviation MRO market in ME region is expected to grow at a faster rate than the global average and the expenditures will be
mainly driven by wide-body aircraft.
– The United Arab Emirates is the largest MRO market in Middle East followed by Saudi Arabia.
– The engine segment accounts for 41 percent of the overall MRO expense, followed by components segment with 22 percent share.
Source(s): Some 2,500 new passenger and freighter aircraft required over the next 20 years, 9 November 2015, Airbus Group website; Boeing projects growing Middle East aircraft demand, 4 November 2015, Biz Journal website; Boeing Sees a $730 Billion Aircraft Market in Middle East Over
Next Two Decades, 4 November 2015, SKIFT website; Year-on-year revenue passenger kilometer (RPK) growth on international routes in January 2015, by region, Statista website; Aircraft Parts, 9 July 2015, Trade Gov website; Middle East MRO Market Forecast At $4.6 Billion, 2 February
2015, Aviation Week website, accessed on 26 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
26
Aerospace and Defense Country Profiles
Saudi Arabian Defense Industry (updated)
Saudi Arabian military expenditure, 2016–17E
(in SAR billion)
Saudi Arabian defense spend as a percentage of GDP, 2010–15
205
13.7
10.7
191
2016E
2017F
8.6
2010
7.2
7.7
2011
2012
9.0
2013
2014
2015
Key Observations
— Saudi Arabia announced a 6.7 percent increase to SAR190.9 billion, in defense spending in the FY17 budget (21.4 percent of the
national budget). The budget statement said military spending would cover equipment, installations, weaponry, ammunition, and
facilities to boost military, institution and housing capabilities.
— According to budgetary documentation, actual spending on defense in FY16 is estimated to be at SAR205.1 billion which is 14.5 percent
higher than what was initially budgeted. Military services was allocated 24.9 percent of the national budget.
— Saudi Arabia is one of the best-funded defense forces in the Middle East and, according to IHS Jane’s, was the leading spender in arms
in 2015 at US$46 billion. Saudi Arabia increased its military spending by around 17 percent in 2014. According to SIPRI estimates, the
military amounts to almost 10.4 percent of the Saudi Arabian GDP.
— IHS Aerospace, Defense & Security forecasts Saudi Arabian defense-specific spending to increase by around US$60 billion a year by
2020 from its present US$49 billion, making it the fifth-largest spender in the world by 2020.
— Despite cuts and deficits, ongoing internal and external concerns such as the threat from Iran and Syria, are driving the increase in
defense spending.
Source(s): Saudi Arabia to raise military spending 6 pct –budget, 22 December 2016, Reuters; Saudi Defense Spending Rises Despite Budget Challenges, 06 November 2015, DefenseNews; Main Features of Saudi Arabia 2017 Budget, 2016 Performance, 22 December 2016, Bloomberg; Saudi
Arabia spends 25% of its budget on its military - here's what they've got for the money, 31 December 2015, Business Insider; Saudi Arabia reveals 6.6% defence spending rise for 2017, 28 December 2016, IHS Jane; 2017 Budget, Ministry of Finance (Saudi Arabia) website; The Biggest Military
Budgets As A Percentage Of GDP, 25 June 2015, Forbes; accessed on 17 February 2017
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
27
United States (US)
Aerospace and Defense Country Profiles
The US defense market (1/3) (updated)
US defense base budget, 2016–21F (in US$ billion)
585.2
564.8
US defense overseas contingency
operations (OCO) budget, 2016–17F (in
US$ billion)
58.8
570.4
556.7
521.7
523.9
58.6
2016
2017F
2018F
2019F
2020F
2021F
2016
2017F
Key Observations
— In FY16, the US Department of Defense (DoD) enacted US$580.3 billion towards both the base budget and the overseas contingency
operations (OCO), US$521.7 billion for base budget and US$58.6 billion for OCO. The department, for FY17 has requested a total of
US$582.7 billion for the defense budget, an increase of US$2.4 billion (0.4 percent increase y-o-y).
–
The FY17 request provides base budget US$523.9 billion, a y-o-y increase of US$2.2 billion. It is focused on technological
superiority, resizing of the ground forces, reforms of healthcare, retirement and family programs, and resource optimization.
–
The request provides OCO budget US$58.8 billion, a y-o-y increase of US$0.2 billion.
Source(s): U.S. Military Budget: Components, Challenges, Growth, The balance website, 26 October 2016; Overview – FY 2017 Defense Budget, Defense.gov website, February 2016; Department of Defense (DoD) Releases Fiscal Year 2017 President’s Budget Proposal, Defense.gov website,
09 February 2016; Overview – FY 2016 Defense Budget , Defense.gov website, February 2015; as accessed on 14 February 2017
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
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Document Classification: KPMG Confidential
29
Aerospace and Defense Country Profiles
The US defense market (2/3) (updated)
US defense base budget, by appropriation title, FY16 vs. FY17F (in percentage)
1.3
Operation and Maintenance
13.2
25.9
21.2
13.6
Procurement
FY16
Total Enacted
Budget =
US$521.7
billion
RDT&E*
19.6
Revolving and Management
Funds
Military Construction
37.9
Family Housing
1.2
0.3
Military Personnel
0.2
0.2
0.3
25.8
FY17F
Total
Proposed
Budget =
US$523.9
billion
39.3
US defense base budget by military department
FY16 vs. FY17F (in US$ billion)
155.4
— In FY16, approximately 63.8 percent of the base budget was spent on
operations and maintenance activities, and military personnel.
151.1
— The US DoD is focused on reducing the ‘cost of doing business’ to
maximize the availability of its constrained resources for the optimum
balance of force structure capacity and technological capabilities. This
includes divesting lower priority or excess force structure and excess
infrastructure and compensation changes.
123.0
123.3
Army
159.3
94.5
145.7
93.4
Navy
Air Force
FY2016
FY2017F
Defense-Wide
Note(s): *RTD&E – Research, Development, Test, and Evaluation
Source(s): U.S. Military Budget: Components, Challenges, Growth, The balance website, 26 October 2016; Overview – FY 2017 Defense Budget, Defense.gov website, February 2016; Department of Defense (DoD) Releases Fiscal Year 2017 President’s Budget Proposal, Defense.gov website,
09 February 2016; Overview – FY 2016 Defense Budget , Defense.gov website, February 2015; as accessed on 14 February 2017
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
30
Aerospace and Defense Country Profiles
The US defense market (3/3)
The US Defense Market
Key Domestic Players — Defense
— In 2014, despite a cut in defense spending, the US led the
global military spending with an estimated share of 37.1
percent of the world. The US defense spending is expected
to drop from 3.2 percent of GDP in FY15 to 2.6 percent in
FY25.
— The DoD, based on the 2014 Quadrennial Defense Review
(QDR) report, is currently focusing on defense reforms that
direct investments toward a ready, technologically superior
force by continuing to reduce force structure.
– The report focuses on the five key priorities aimed
at rebalancing Asia-Pacific, security and ensuring
stability in Europe and the Middle East, countering
violent insurgencies; making investments in
technology and building innovative partnerships.
— The US DoD aims at transforming its war-fighting
capabilities, with an increased focus on affordability.
– The changing landscape has led defense
manufacturers to focus on innovative equipment
that can be manufactured out of existing product
lines.
– The reforms are also exerting pressure on legacy
players, such as Lockheed Martin, Northrop
Grumman and Elbit Systems, to speed up
development timelines and reduce costs.
— Since 2015, the DoD has been focusing on slowing the
growth rate of personnel costs.
Company
name
Revenue
(US$ million)
Major category
Lockheed
Martin
45,600
Aircraft, ground vehicles, missiles and guided
weapons, missile defense, naval systems,
radar systems, tactical communications,
unmanned systems
Boeing
30,881*
Aircraft, missile defense, helicopters, maritime
surveillance, unmanned vehicles, weapons
Raytheon
22,826
Radars, surveillance systems, communication
terminals, missiles, ship defense systems and
many other control systems
General
Dynamics
30,852
Main battle tanks, tracked combat vehicles,
light armored vehicles, weapon systems and
munitions, nuclear-powered submarines,
combat ships
Northrop
Grumann
23,979
Military aviation, naval defense, navigation
systems, manned and unmanned aircraft
United
Technologies
13,020*
Aerostructures, engine systems, sensors and
integrated systems
Note(s): *Revenue for defense segment. Most of the given revenues are for the year 2014
Source(s): 2015 Defense News Top 100 Aerospace & Defense Companies, 2015, Fire Support website; Products, Lockheed Martin website; Boeing website; Products & Capabilities Listing, Raytheon website; Capabilities, Northrop Grumman website; UTC Aerospace Systems, United
Technologies website, accessed 5 January 2016
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provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
31
Japan
Aerospace and Defense Country Profiles
Japan defense market (1/3) (updated)
Japanese defense spend, 2013–17E (in JPY
trillion)
Total defense spend comparison, 2016 vs. 2017 (in JPY
trillion)
5.13
4.78
4.82
4.86
General
material
expenses
Obligation
outlay
expense
Personnel
provision
expenses
2016 Budget
JPY0.9
JPY1.7
JPY2.2
2017 Budget
Request
JPY1.0
JPY1.8
4.68
2013
2014
2015
2016
JPY2.2
2017E
Key Observations
— In FY16, JPY4.86 trillion was approved by the Cabinet towards the defense base budget. In FY17,the Japanese Prime Minister has approved
a 1.4 percent increase in defense spending to JPY5.13 trillion, which is yet to be approved by lawmakers. The defense budget represents 5
percent of the overall government expenditure and less than 1 percent of the country’s GDP.
— In FY16, approximately 44.2 percent of the base budget was spent on personnel provision expenses, while obligation outlay and general
material expenses accounted for 35.3 percent and 20.5 percent respectively.
–
In FY17, the government plans to allocate JPY10,226 billion, JPY17,958 billion and JPY21,551 billion towards general material,
obligation outlay and personnel provision expenses respectively.
Source(s): Japan sets record defense budget with eyes on China, N Korea, 22 December 2016, CNN; Overview of FY2017 Budget Request, Overview of FY2016 Budget, Defense Budget, Ministry of Defense website; accessed on 15 February 2017
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
33
Aerospace and Defense Country Profiles
Japan defense market (2/3) (updated)
Composition of Japanese defense base budget FY16 (in percentage)
6.4
3.3
3.6 General
41.0
Material
(Activity)
Expenses
= JPY9,948
billion
2.5
Maintenance
Maintenance
2.8
Equipment Acquisition
6.4
Base Measures
Aircraft Acquisition
42.9
Facility Improvements, etc.
Shipbuilding
Equipment Acquisition
Facility Improvements
9.6
11.0
0.6
4.6
Obligatory
Outlay
Expenses
= JPY17,187
billion
43.3
Research and Development
Research and Development
Others
Base Measures
22.0
Others
— As a result of territorial disputes with China and nuclear and missile threats from North Korea, funds have been requested for six new submarines
and an additional Soryu-class diesel-electric attack submarine equipped with improved sensors. Additionally, funds have been requested for six
additional F-35A Lightning II Joint Strike Fighters, four Bell Boeing V-22 Osprey tilt-rotor aircraft and 11 AAV7 amphibious assault vehicles.
— The Japanese Ministry of Defense (MoD) intends to invest in cyber resilience technology research and conduct research on autonomous
surveillance technology and a sensor system for unmanned underwater vehicles.
— There is a plan to enhance capabilities such as personal protection equipment and devices to detect chemical agents in order to respond to
Nuclear, Biological and Chemical (NBC) weapons, and to collect intelligence and analyze data.
— The MoD is also focused on realignment of the US forces in Japan, revision of its various personnel programs, including the engagement of
female personnel and measures to ensure work-life balance.
Source(s): Japan in record military spending amid Chinese tensions, 22 December 2016, BBC; Japan Approves Modest Defense Budget Hike, 23 December 2016, Japan Approves Record Defense Budget, 28 December 2015, The Diplomat; Japan's government approves record military
spending, 22 December 2016, Times of India; Overview of FY2017 Budget Request, Overview of FY2016 Budget, Ministry of Defense website accessed on 16 February 2017
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
34
Aerospace and Defense Country Profiles
Japan defense market (3/3)
Japan Defense Market Outlook
— In FY16, Japan is expected to focus on improving its defense capabilities to
build a Dynamic Joint Defense Force, as per the ‘National Defense Program
Guidelines for FY14 and beyond‘ and the ‘Medium Term Defense Program
(FY14–18)‘.
— Japan aims at building its defense capabilities while focusing on improvising
its defense functions to fulfill its defense needs, thereby providing
deterrence and response to a variety of security situations.
– Japan is focused on ensuring security through intelligence, surveillance
and reconnaissance (ISR) capabilities; intelligence capabilities;
transport capabilities; command, control, communication and
intelligence (C3I) capabilities; response to attacks on remote islands;
response to ballistic missile attacks; response in outer space and
cyberspace threats; and response to large-scale disasters.
— After the lifting of the ban on weapons export in 2014, the Japanese defense
companies are focusing on leveraging advanced technological expertise to
gain market share in the global defense equipment market.
– In September 2015, Japan entered into negotiations with Canberra to
build 12 submarines worth US$38 billion at Australian shipyards,
strengthening its foothold as global defense supplier.
– Japanese companies such as Mitsubishi Heavy Industries Ltd and
Kawasaki have been supplying equipment to the Japanese SpecialDefense Forces (SDF). However, post the lifting of the export ban,
Japan has been supplying gyroscopes to the US.
– Japan, along with the UK, is involved in a Joint Missile Research
program, as well as a series of defense equipment cooperation
agreements with France, India, Qatar, the Philippines, and Vietnam.
Key Domestic Players – Defense
Company
Revenue*
(JPY
billion)
Products/services
Mitsubishi
Heavy
Industries
4,141
Ships (destroyers/submarines),
military vehicles, aircrafts, defense
aero-engine and guided weapon
systems
Mitsubishi
Electric –
MELCO
4,431
Electronics
Kawasaki
Heavy
Industries
1,535
Ships, aircrafts, Helicopters and
engines
NEC
Corporatio
n
2,882
Electronics
Fujitsu
4,797
Electronics (IT solutions)
Komatsu
Ltd
1,912
Small arms, ordnance and military
vehicles
Toshiba
6,354
Electronics
Hitachi Ltd
10,187
Electronics and military vehicles
Daikin
2,034
Ammunition
Note(s): *Overall company revenue; Most of the given revenues are for the year 2015
Source(s): India defense market overview, 2015, Pennsylvania Department of Community and Economic Development; defense manufacturing, Make in India website; The seven homegrown firms fighting over India’s $620 billion defense market, 20 February 2015, Quartz India website, accessed
21 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
35
Aerospace and Defense Country Profiles
Japan commercial aviation market (1/2)
Japanese aerospace, 2015
Japan aerospace industry, 2012–15 (in
million US$)
17,328
Exports
16,503
US$17.3
billion
12,240
15,717
10,048
15,021
Japan has a lucrative market for
imported aircrafts, aircraft parts and
engines
Trade statistics, Aircrafts,
aircraft parts and engines
2012–15
2012
2013
2014
2015
2012
Imports
13,363
11,003
2015
Key Observations
— Japan aerospace-aeronautics sector lagged behind the US, Russia and European nations, as the
country was forbidden from development and production of aircraft. The country, in late 1960s, started Imports, 2015 (in
licensed production of defense aircraft, and since then the national development and production
percentage)
systems have grown.
— In the civil aviation market, Japanese manufacturers such as Mitsubishi Heavy Industries, Kawasaki
Heavy Industries and Fuji Heavy Industries are involved in supplying spares and parts to leading
commercial aircraft and OEM manufacturers such as Boeing, Rolls Royce and GE.
31.1
– In 2015, according to Society Of Japanese Aerospace Companies (SJAC), Japanese firms
accounted for approximately 35 percent of Boeing 787 structures and systems.
– In 2014, Japanese companies announced to supply 20 percent of the parts for the Boeing
777X.
68.9
— The Japanese companies are also involved in a number of international joint development projects
aimed at developing military and commercial aircrafts.
— Mitsubishi Heavy Industries, has partnered with numerous US manufacturers such as Pratt & Whitney,
US imports
Others
Parker Aerospace, Hamilton Sundstrand Corporation and Rockwell Collins to supply parts for
Mitsubishi Regional Jet (MRJ)
Source(s):Aerospace Resource Guide: Japan, U.S Department of Commerce; Aerospace/Aviation Industry Opportunities in Japan & China, June 2015, Maine International Trade Center; Japanese Aerospace Industry Leads the Worldwide Competitiveness,18 June 2013, The Society of Japanese
Aerospace Companies, accessed 30 March December 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
36
Aerospace and Defense Country Profiles
Japan commercial aviation market (2/2)
Aerospace Industry Domestic Players
Company
name
Revenue
(JPY million)
Major category
Mitsubishi
Aerospace
NA
— Development, production and sale of
MRJ
— Supplying OEMs with airframes and
components to functioning of civil
aircraft and defense products
Kawasaki
Aerospace
NA
— Manufacturer of aircraft and aircraft
engines
Fuji
Aerospace
NA
— Development and production of
various aircrafts, including
international joint development of
Boeing 767, 777 and 787
Shin Meiwa
Kogyo
Company
NA
— Manufacturer of amphibian aircrafts
Jamco Corp
89,017
— Full service machining and airframe
sub-assembly company
Key Growth Initiatives
— Competitors:
– In 2015, according to the Ministry of Finance, imports
of aircraft products amounted to US$13.3 billion, with
the US alone accounting for approximately 68.9
percent of the total imports. US-made aircraft, aircraft
engines, and parts and supplies have a majority of the
market share in the Japanese Aviation market.
— Outlook:
– The SJAC forecasts the Japanese aviation industry to
grow over the next five years owing to Japanese firms
involvement in various international joint development
projects with Boeing and Airbus.
– Other international joint development projects and the
national development of military and commercial
aircraft and engines are expected to increase the
aerospace sector growth.
— Sector policy:
– According to the US commercial Trade Service, Japan
does not levy import duties on aircraft or aircraft parts.
Approximately 250 items are duty free as under the
Civil Aircraft Agreement Product Coverage policy, that
are for use in civil aircraft or ground flying trainers or for
incorporation therein, in the course of their
manufacture, repair, maintenance, rebuilding,
modification or conversion.
Source(s): Aerospace Resource Guide: Japan, U.S Department of Commerce; Aerospace/Aviation Industry Opportunities in Japan & China, June 2015, Maine International Trade Center; Japanese Aerospace Industry Leads the Worldwide Competitiveness,18 June 2013, The Society of
Japanese Aerospace Companies, accessed 30 March December 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
37
China
Aerospace and Defense Country Profiles
China commercial aviation industry (1/3)
Domestic commercial aircraft fleet in China, 2013–
34F
6,330
new air crafts
Number of air passengers in China, 2014–20F (in million)
7210
390.9
2310
2570
2013
2014
Med. Wide body (300-400)
561.9
430.0
JPY2.2
2034F
2014
JPY1.0
Commercial aircraft demand, by sub-types, 2034
Large wide-body (400+)
CAGR =
10%
2015E
JPY1.8
2020F
Key Observations
— China has emerged as the world’s second-largest aviation market.
According to Boeing, the country is expected to triple its aircraft
demand by 2034 with an overall spend of US$950 million. The
commercial aviation demand is mainly driven by the following
factors:
60
640
– Increasing disposable income and middle-class population
Small wide body (200-300)
– Government focus toward domestic production
780
– Rapid growth of low-cost carriers in the country
Single-aisle (90-230)
Regional (<90 seats)
4,340
200
— According to the Centre of Asia Pacific Aviation, the Chinese airline
industry witnessed an increase in air traffic by 13 percent in 1Q15
from that in 1Q14. However, despite the slowdown in the Chinese
economy, domestic air travel demand increased to 11 percent in
1Q15.
Source(s): “Boeing's Long Run Prospects In China,”Seeking alpha, accessed on 17 December 2015; “ Air transport, passengers carried,” word bank World Bank, accessed on 21 December 2015; “Commercial Aircraft Market in China 2014-2018,” PR Newswire, accessed 21 December 2015;
“China’s Aerospace Industry,” PIM LTD, accessed 21 December 2015; “Boeing: China Needs 6,300 New Planes by 2034,” Industry Week; Commercial Aircraft Market in China 2014-2018, 03 April 2014, PR Newswire; Aerospace/Aviation Industry Opportunities in Japan & China, 07 July 2015,
Maine International Trade Center, accessed on 21 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
39
Aerospace and Defense Country Profiles
China commercial aviation industry (2/3)
Market Scenario and Regulations
— According to China’s aviation administration, CAAC, a series of policies are aimed at creating private investments in the civil aviation sector.
– The regulation is expected to encourage private investment in key aviation infrastructure sectors, which include domestic airlines,
airports, cargo facilities and services such as fuel supply and storage, maintenance and repair, and operations, catering and distribution
systems.
– The presence of domestic manufacturing companies such as Comac and PRC’s 2015 revision of the Catalogue of Industries for
Guiding Foreign Investment is encouraging foreign investment in the manufacturing of small-scale aircraft parts such as aircraft
motors or bearings and designing of new Chinese airports.
– Companies such as General Electric, Honeywell, Kidde and Rockwell Collins have already capitalized upon investment opportunities by
providing engines, auxiliary power units, flight simulator tests, and fire and heat protective systems to COMAC
— Foreign companies are facing barriers to entry into the Chinese aircraft production market and aircraft ownership. According to “Catalogue of
Industries for Guiding Foreign Investment’s 2015 revision list of restrictions”, it is a mandate to have a Chinese national as the controlling
shareholder of the aircraft manufacturing company.
– Domestic manufacturer COMAC developed the large passenger jetliner C919 in September 2015. The aircraft is 15 percent more fuel
efficient and less expensive than its American and European counterparts. The price difference is about US$78–113 million for Boeing
737 and US$88–97 million for Airbus A320.
Aerospace Industry Domestic Players
Company name
Revenue
(US$ million)
Major category
Aviation Industry
Corporation of China
62,197.2
Fighters, passenger aircrafts, civil helicopters, trainers, general aircrafts, VOLVO, cargo semi-trailers, and
engine cam phasers.
AviChina Industry &
Technology Company
Limited
4,145.5
The company is involved in the development, manufacture, sale, and upgrade of aviation products, such as
helicopters, trainers, general-purpose aircrafts, regional jets, and also offers other aero products. It also offers
aviation parts and components, and aviation electrical engineering products and accessories.
Source(s): Exploring New Opportunities in China’s Aviation Industry, 30 June 2015, China Briefing; China Opens Up Aviation Market, Bringing Potential Environmental Challenges, 20 January 2016, Worldwatch Institute; China just unveiled its first large passenger plane, 02 November 2015,
Business Insider; Exclusive: China-made regional jet set for delivery, but no U.S. certification, 21 October 2015, Reuters, Capital IQ Data base, accessed on 20 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
40
Aerospace and Defense Country Profiles
China commercial aviation industry (3/3)
Aerospace Industry Domestic Players
Company name
Revenue
(US$ million)
AVIC Aviation Engine
Corporation PLC
4,137.9
Manufactures and distributes aero engines and aero products which includes low-pressure compressor rotors,
turbine nozzle boxes, low-pressure turbine shaft blocks, turboelectric power units, turbo-starters, and others.
AVIC Aircraft Co., Ltd.
3,417.9
Engages in the aviation, road transportation, and construction material businesses. The company primarily
offers military and civilian aircraft, aircraft landing gears and wheel brake systems, spare parts for automobiles
and aircrafts, decoration materials, aluminum alloy profiles, and others.
AVIC Helicopter Co.,
Ltd.
2,008.3
The company offers Z9 helicopter series, Y12 multi-purpose light aircraft series, H425 helicopter series, EC120
helicopter series, and others.
China National
Guizhou Aviation
Industry (Group) Co.,
Ltd.
1,899.3
Airborne equipment, tools, and ground supply equipment.
China Avionics
Systems Co.,Ltd.
1,065.2
Manufactures and distributes aerospace electronic products and automobile components. This includes plane
engine parameter collection, display, and recording devices; plane location navigation equipment, plane attitude
heading systems, air data systems, etc.
China Aerospace
Times Electronics
CO., LTD.
790.4
The company is engaged in the manufacture and distribution of aerospace electronic products primarily in
China. The offerings includes high performance sensors, radio measurement and control systems, special
electronic communication products, automatic tracking and data collection systems
Sichuan Chengfa
Aero-Science &
Technology Co.,Ltd.
316.5
The company engages in the processing and distribution of aero products and combustion gas turbine spare
parts.
Hunan Boyun New
Materials Co., Ltd.
61.3
Carbon/carbon composite material products, powder metallurgy materials products, etc.
Major category
Note(s): Companies with revenues more than US$50 million have been considered; Most of the given revenues are for the year 2015
Source(s): Capital IQ Data base, accessed on 20 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
41
Germany
Aerospace and Defense Country Profiles
Germany defense industry (updated)
German defense spend, 2013–
21F (in EUR billion)
German defense spend as a
percentage of GDP, 2013–17F
German defense spend by expenditure
category, for 2015 (in percentage)
39.2
11.9
1.23
37.0
1.22
34.6
35.8
34.5
34.7
35.0
Total
Spend =
EUR35.8
billion
Equipment
Personnel
Infrastructure
1.19
1.19
1.19
3.6
49.9
Other
2013 2014 2015 2016E 2017F 2020F
2013 2014 2015 2016E 2017F
Key Observations
— According to Ursula von der Leyen, German Defense Minister, Germany aims to increase its military spend by EUR2 billion in 2017 to
EUR37 billion.
–
In 2016, procurement spending accounted for 14.5 percent of the military budget, and is expected to increase to about 16.2 percent
in 2017. In 2017, funds for military acquisitions are likely to increase about EUR1 billion, from EUR10.2 billion to EUR11.1 billion.
— Germany is focused on boosting its defense spending to meet NATO’s defense spend target, i.e. 2 percent of the GDP. To meet that target,
its defense spending will need to increase to EUR60 billion. The current planned military budget for 2020 is EUR39.2 billion.
Source(s): Defence Budgets and Cooperation in Europe, iris-france.org website, July 2016; The 2017 German budget: Billions for the military and war, wsws.org website, 28 November 2016; Germany’s Merkel calls for large increase in military spending, stripes.com website, 18 October 2016;
Merkel: Germany to heavily increase Bundeswehr budget, DW website, 16 October 2016; German Defense Spending Hike Reflects Regional Trend, Defense News website, 24 March 2016; Merkel wants Germany military budget boosted to counter ‘external threats’, rt.com website, 22 June 2016;
Germany says boosting defense spending, demands clear U.S. agenda, Reuters website, 18 January 2017; Defence Expenditures of NATO Countries (2009-2016), NATO website, 04 July 2016; as accessed on 14 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
43
Aerospace and Defense Country Profiles
Germany defense industry (1/3)
Key Regulations
Small arms
principles
On 18 March 2015, German Federal Government adopted the following principles for issuing export licenses for
small arms and light weapons, corresponding ammunition and production equipment to the ‘Third countries’*:
— The government will not issue export licenses of components and technology to third countries as this might
create new production lines for small arms and light weapons or corresponding ammunition in third countries.
— According to the legal principle of legitimate expectation, the government will only allow export licenses for
spare and wearing parts, equivalent replacements and consumables for production lines supplied in the past.
This will not include the increase capacity or expand the product range
Policy on Exports of
Conventional Military
Equipment
According to this law, all applications for export licenses are decided on a case-by-case basis following careful
consideration in particular of the arguments in terms of foreign policy, security policy and human rights. This
includes the following clauses:
— General principle: Respect of human rights in the export destination and end use are the governing factor to
grant licenses for the export of war weapons and other military equipment.
— NATO countries, EU member states, countries with NATO-equivalent status: The Federal government will raise
objections against the following issues:
– Exports to countries involved in armed conflict
– Exports to countries where an outbreak of armed conflict is imminent or where exports may stir up,
perpetuate or exacerbate latent tensions and conflicts
– Exports where there are reasonable grounds to suspect they may be used for internal repression as
defined by the EU Code of Conduct on Arms Exports or the sustained and systematic abuse of human
rights
1
2
In February 2015, the German economics ministry, which reviews requests for export licenses, announced 32 percent drop in governmentapproved arms exports. The decline is in line with shift in export policy made by economics minister Sigmar Gabriel in 2013, which includes
substantial reduction in German weapons exports, mainly to the Middle East.
— In 2014, the approved export to Arab countries fell to EUR660 million from EUR2.1 billion in 2013.
— The policy shift is expected to affect revenues of major players such as ammunition maker Rheinmetall AG and tank manufacturer KraussMaffei Wegmann GmbH.
Note(s): Third countries are all countries with the exception of EU member states, NATO countries and NATO-equivalent countries (Australia, Japan, New Zealand and Switzerland)
Source(s): German Defense Industry Under Pressure as Berlin Limits Arms Exports, 10 February 2015, Wall Street Journal; Small-arms-export-principles-german-federal-government, 06 August 2015, Federal Ministry for Economic Affairs and Energy; Policy on Exports of Conventional Military
Equipment in 2013 , Facing Finance; Pennsylvania’s Department of Community and Economic Development, 06 August 2015, Pennsylvania Department of Community & Economic Development, accessed on 10 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
44
Aerospace and Defense Country Profiles
Germany defense industry (2/3)
Defense Industry Domestic Players
Company name
Revenue
(EUR million)
Rheinmetall Defence
4,688
(2,240)*
Major category
Combat systems, electronic solutions, wheeled vehicles, etc.
Krauss-Maffei
Wegmann GmbH &
Co. KG
NA
Wheeled and tracked vehicles, air defense systems, artillery, etc.
Note: The company has acquired Wegmann & Co. GmbH that is involved in the production of armored
wheeled and tracked vehicles.
Diehl Defence
488
Guided ammunition (medium and large caliber), sensor and security systems, infrared modules,
spemissiles/rockets, cial batteries, fuzes, etc.
Grob Aircraft AG
Eurofighter
Jagdflugzeug Gmbh
Approximately
20–25
High altitude surveillance aircraft for high altitude research, maritime patrol, surveillance, and photography
requirements
3,766.9
Designs and manufactures military aircrafts (Eurofighter Typhoon, a multi role/swing-role combat aircraft)
771.5
Engages in manufacturing, support, and export of EJ200 engine systems that are installed in Eurofighter
Typhoon aircrafts
EUROJET Turbo
GmbH
Premium AEROTEC
GmbH
1,878.5
Engages in the development, manufacturing, and supply of metal and carbon fiber composite aircraft structures,
associated equipment, and production systems for military aircraft construction.
409.5
Submarine systems, surface combatant systems, mine warfare systems, maritime security systems, unmanned
vehicles, naval weapons, communication systems, and anti-submarine warfare systems; and sonars for
submarines and surfaces combatants, mine hunting systems, shipping guidance systems, and coastal
protection systems.
ATLAS ELEKTRONIK
GmbH
Note(s): *Revenue for defense segment; Most of the given revenues are for the year 2015; Companies highlighted in blue holds significant position in the list of top 100 Aerospace & Defense Companies.
Source(s): Capital IQ Data base, accessed on January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
45
Aerospace and Defense Country Profiles
Germany defense industry (3/3)
Defense Industry Domestic Players
Company name
Revenue
(EUR million)
MTU Aero Engines
AG
3,913.9
(531.5)
Heckler & Koch
GmbH
NA
Aerotech Peissenberg
GmbH & Co. KG
101.3
GABLER
Maschinenbau GmbH
NA
Major category
Military aircraft engines
Small arms and light weapons: pistols, submachine guns, assault rifles, precision rifles, machine guns, and 40
mm systems
Note: The company designs, develops, and manufactures infantry weapon systems and small arms for
security, police, special, and military forces in NATO and NATO-allied countries.
It engages in the engineering and manufacturing of turbine components for commercial and military engine
markets, and industrial gas turbines.
Manufactures hoistable masts and components for submarines. The company product portfolio includes
subsystems for submarines, such as electrical rotary drives for horizontal rotating radar antennas, shore and
charging connections for the external power supply via outside sources, and rudder and plane drive systems.
Note(s): Most of the given revenues are for the year 2015
Source(s): Capital IQ Data base, accessed on January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
46
Aerospace and Defense Country Profiles
Germany aerospace market
Number of air passengers in Germany, 2015–34F
Freight traffic in Germany, 2015–34F (in tons)
7.3
175
105
2.3
2014
JPY2.2
2014
2030F
JPY1.0
Key Observations
2030F
JPY1.8
Key Challenges and Regulation
— The civil aircraft parts imported to Germany are regulated by
— In 2014, German aerospace industry reported a revenue of EUR32
European Aviation Safety Administration (EASA). The US
billion with an annual average rise of 7 percent. Though defense and
companies face following issues while exporting civil aircraft parts to
space sector have high growth rate, the civil aviation market
Germany:
accounts for 60–65 percent of the overall aerospace revenue.
– The R&D segment accounts for 13.3 percent (EUR4.3
billion) of the overall aerospace revenue.
— According to German trade and investment, the country ranked
second in terms of Global Aviation Manufacturing Attractiveness
Index. It has leading players from all business segments such as
equipment manufacturers, material and component suppliers to
engine producers and whole system integrator, thus offering
powerful manufacturing base across value chain. This is expected to
provide multiple business opportunities to the international
investors. .
– Delay in granting approval, thus providing market advantage
to European suppliers.
– The small and medium sized manufacturers feel
discouraged due to the level of fees charged by EASA to
validate the FAA’s original airworthiness certification.
— Bilateral Aviation Safety Agreement (BASA): Under this agreement,
the EASA approval is not required for certain aircraft parts which is
approved by the US Federal Aviation Administration while exporting
to Germany.
Source(s): Aerospace Industry: Leading Technology for Higher Goals, 29 March 2016, Germany Trade and Invest website; Aerospace Resource Guide: Germany, 28 July 2015, Export.gov website; German Aerospace Industry, 27August 2014, Enviacon International Report; 2030 forecast – over
70 million additional air passengers in Germany, 22 December 2015, DLR website; Germany Aerospace Industry, Trade Government website, accessed 11 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
47
Brazil
Aerospace and Defense Country Profiles
Brazil A&D market
Brazil defense spend, 2014–20F (in US$ billion)
— Brazil’s Ministry of Defense intends to improve the defense base through a
series of projects, starting with the recently awarded USD3 billion contract
to acquire 28 new fighter jets over 12 years.
41.4
28.1
–
31.9
–
2014
2015
2020F
Brazil and Russia agreed on a program for joint development of
military technologies, including unrestricted transfer of
technologies.
JPY0.9
JPY1.7
JPY2.2
Brazil also entered into a defense industry partnerships with
Turkey, establishing five industry working groups covering industrial
collaboration in naval, aeronautics, space and cyber matters.
JPY1.0
JPY1.8
Key Observations
Key Domestic Players — Defense
— The Brazilian Ministry of Defense aims to decrease its dependence
on foreign OEMs (original equipment manufacturers) and enhance
its domestic defense capabilities. The only challenge for OEMs will
be the extensive requirements for technology transfer, coupled with
the delay in the country’s approval of defense deals.
Company
name
— Major Brazilian companies have formed defense and security arms,
or have amalgamated with other companies to form powerful blocks,
capable of acting as prime contractors. These companies have
access to the Defense Ministry and the Brazilian government.
— The recent increase in the defense expenditure can be attributed to
the procurement of huge military hardware, and a focus to boost the
indigenous defense industry by equipping the country with the latest
technological developments and improving its product offering.
— The Brazilian defense export market is expected to expand, fueled
by the sale of its indigenous air cargo transport aircraft.
Revenue (BRL
million)
Product/services
Embraer S.A.
14,935.9
Aircraft and systems; technical support
and after-sales service
Helicópteros do
Brasil S.A.
671.3
Development, manufacturing, and
assembling of helicopters
Companhia
Brasileira de
Cartuchos
621.5
Ammunitions; law enforcement training
and service ammunitions
Forjas Taurus
S.A.
591.5
Ammunitions
Avibras Indústria
Aeroespacial
S.A.
544.2
Design, development, engineering,
and manufacture of defense systems.
Source(s): Global Defense Outlook 2014, Adapt collaborate and invest, via Deloitte website; Brazil will remain largest defence spender in Latin America, 13 February 2015, via strategic defense website; Defence and security export market briefing: Brazil, 25 March 2015, via GOV.UK website;
Aerospace & defense 2014 year in review and 2015 forecast, via PwC website; Global Aerospace and defense outlook, 2014, via KPMG website; Brazils Defense Industry Market Report 2012-2017, 7 April 2013, via Defense update website; Capital IQ; accessed January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
49
Aerospace and Defense Country Profiles
Brazil A&D market (1/2)
Number of air passengers in
Brazil, 2016–34F
(passengers in million)
Brazil domestic market
share, by airline, 1H16 (in
TAM
%)
1
272
Gol
36
37
170
9
2015
17
Azul
Avianca
Brazil
Passaredo
2034F
Number of air passengers (in millions), as per the busiest
airports in Brazil
Salvador International Airport
9.2
Porto Alegre International Airport
8.4
Fortaleza International Airport
Florianopolis International Airport
6.5
3.6
Key Observations
— The boom in the Brazilian Aerospace Industry in the past
years has seen the country become well integrated into
the global supply chain. The market has opportunities to
offer, such as the aerospace maintenance and repair
sub-sector, which is enjoying an annual growth of 5–6
percent over the last few years.
— Expansion opportunities and better integration are
expected in areas of supply chain and procurement,
composites and metallic structures, automation
technology, connectivity and MRO. The industry
welcomes competitors and development of the existing
supply chain within the aerospace sector to respond to
the growing marketing needs within Brazil.
— Brazil has one of the largest markets for domestic flights
globally. According to IATA (International Air Transport
Association), the average annual growth of the
domestic market is expected to be about 5.4 percent as
compared to the 3 percent average global growth.
— In June 2015, the Brazilian Government announced a
huge infrastructure concessions package for airports.
Four large international airports (Salvador International
Airport, Porto Alegre International Airport, Fortaleza
International Airport and Florianopolis International
Airport) will receive about EUR1.97 (RBL8.4) billion
investment.
Source(s): Brazilian airline Gol’s fortunes are inextricably tied to and mired in Brazil’s weakening conditions, 20 August 2015, via CAPA website; Brazil’s aviation set to experience world-class ground handling, 27 November 2015, via dnata website; Business Opportunities in Brazilian airports, 13
November 2015, via finpro website; New IATA Passenger Forecast Reveals Fast-Growing Markets of the Future, 16 October 2014, via IATA website; The Aerospace Industry in Brazil, via bciaerospace website; Brazilian Aerospace Industry, 10 April 2014, via The Brazilian Business website;
Commercial Aviation, via Embraer website; Brazil’s domestic aviation market remains stable despite macroeconomic uncertainty, 30 August 2014, via CAPA website; accessed 20 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
50
Aerospace and Defense Country Profiles
Brazil A&D market (2/2)
Aerospace Industry Key Player — EMBRAER
Brazil Airline Market Share, 1H14–15
— Embraer is the third largest aerospace company in the world
and is the biggest in Brazil, owning almost 90 percent of the
local market. Many of the other companies are directly linked to
Embraer, being responsible for the supply of some components
and the maintenance of airplane parts.
Airline
— The net profits for the commercial aviation sector as a whole
were about US$10 billion in 2013. In 2014, they doubled,
according to the International Air Transport Association (IATA).
The North American airlines accounted for US$12 billion of the
total, providing a favorable backdrop for Embraer’s sales during
the year.
— Commercial Aviation maintained a diverse base of clients in
2014, leading to confirmed orders for new planes from airlines
such as AZAL (Azerbaijan), Azul Linhas Aéreas (Brazil) and
ICB.
— Commercial Aviation in Brazil ended 2014 with a confirmed
order backlog of US$13.5 billion.
— Due to the power and size of Embraer, the value acquired by
the Brazilian aerospace industry through exports is higher than
the amount spent on importations, according to IPEA, short for
Instituto de Pesquisa Econômica Aplicada. The Brazilian
exportation is responsible for revenues of about BRL6 billion (as
per AIAB).
TAM
Gol
JPY0.9
Market share 1H15
Market share 1H14
37%
38%
JPY1.7
36%
JPY2.2
36%
Azul
17%
17%
Avianca
Brazil
9%
8%
JPY1.0
Passaredo
JPY1.8
1%
JPY2.2
1%
— Brazil’s two major airlines TAM and Gol decided to reduce their
domestic capacity in 2015 from previous growth targets. TAM
plans a 2 percent to 4 percent decrease versus flat growth, with
an 8 percent to 10 percent decline in 4Q15. Gol airline forecast a
capacity decline of 2 percent to 4 percent in 2H15.
— Azul’s capacity growth of 5 percent in 1H15 was a significant drop
from the 44 percent recorded previous year and Avianca Brazil’s
supply growth slowed to 17 percent from 23 percent — both the
airlines would not decrease their domestic supply in 2015.
— Avianca Brazil stated that it would increase its capacity by 15
percent in 2015 as it replaced Fokker aircraft with higher density
Airbus narrowbodies. Azul and Avianca, both are in their growth
phase, working to maintain and expand the market share.
Source(s): Brazilian airline Gol’s fortunes are inextricably tied to and mired in Brazil’s weakening conditions, 20 August 2015, via CAPA website; Brazil’s aviation set to experience world-class ground handling, 27 November 2015, via dnata website; Business Opportunities in Brazilian airports, 13
November 2015, via finpro website; New IATA Passenger Forecast Reveals Fast-Growing Markets of the Future, 16 October 2014, via IATA website; The Aerospace Industry in Brazil, via bciaerospace website; Brazilian Aerospace Industry, 10 April 2014, via The Brazilian Business website;
Commercial Aviation, via Embraer website; Brazil’s domestic aviation market remains stable despite macroeconomic uncertainty, 30 August 2014, via CAPA website; accessed 20 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
51
Mexico
Aerospace and Defense Country Profiles
Mexico A&D market
Mexico 2015 defense budget (in percentage)
1
SEDENA (Army & Air
Force)
4
7
24
0.4
Mexico defense spend and Capex, 2013–18F
4.9
78.6
84.6
SEMAR (Navy)
ISSFAM (Pension &
Health Services)
100% =
MXN111.6
billion
2013
Gendarmerie
64
CGTAP (Presedentail Air
Transport)
3
Personnel
13
Operations
100% =
MXN111.6
billion
62
111.5
2014
2015
Defense spend
124.7
7.5
8.6
140.3
154.5
2016F
2017F
2018F
Capital expenditure
Key Observations
EMP (Presedtial Secret
Service)
22
6.8
4.5
6.5
Investment
Others
— In 2015, Mexico’s defense budget received the largest nominal
sum in its history: MXN111.4 billion, (approximately USD7 billion).
That is equivalent to 0.51 percent of Mexico’s GDP.
— Mexico’s fight against drug cartels is driving the defense
expenditures. The key opportunities for equipment suppliers are
expected in surveillance equipment, special operation helicopters
and maritime patrol aircraft.
— Personnel costs is one of the key drivers for high revenue
expenditure. About 81 percent of the revenue expenditure is spent
on defense personnel, including remuneration and benefits for the
defense staff.
— Mexican defense spending is expected to rise by 1.4 percent in
2016, if the draft budget presented to the country's Chamber of
Deputies is passed. However, the defense expenditure is likely to
experience a decline in 2016, due to the forecast inflation rate of
3.2 percent in Mexico next year.
Note(s): Others expenses include intelligence operations and cross functional spending
Source(s):Future of the Mexican Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2019, 10 September 2014, via PR Newswire website; Megatrends shaping the Mexican
aerospace and defense sector, 8 April 2014, via EY website; Military expenditure (% of GDP), via The World Bank website; Refurbishing the force: Mexico’s 2015 defense spending, 14 September 2015, via ElDailyPost website; Aerospace Industry in Mexico, May 2015, via PwC website; Draft
Mexican budget cuts defence in real terms, 15 September 2015, via janes website; accessed January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
53
Aerospace and Defense Country Profiles
Mexico A&D market (1/2)
Key Trends
Regulatory Landscape
Multiple trade
agreements promote
international trade
Intellectual Property
(IP) regulations and
industry
certifications boost
investor confidence.
— OEMs are focusing on fuel-efficient and environment-friendly products to
gain a competitive advantage. Aerospace companies are manufacturing
a substantial portion of their new fuel efficient products in Mexico. For
instance, Bombardier is manufacturing 85 percent of the composite
materials for Learjet85 at its Mexican facility.
IMMEX allows export of
temporarily imported
Goods and strengthen
export competitiveness.
— Companies are coordinating with the government to fulfil the increasing
demand for skilled workforce. Companies, academics and government
agencies in Mexico are collaborating to improve on the research and
development (R&D ), engineering and training facilities in the country.
— Companies are moving manufacturing closer to the US and other regions
with high customer demand. For example, Airbus moved some of its
component manufacturing processes from its Asian facility to the
Mexican one. This is expected to shorten the lead times, increase control
over supply chain and reduce transportation costs.
Segmentation of A&D companies in Mexico (in
percentage)
Manufacturing
70
— OEMs are considering vertical integration and strategic alliances to build
global supply chain networks. They are also acquiring small and niche
suppliers to vertically expand the supply chain.
— Business jet and single-aisle segments are growing fast, driven by the
demand from developed markets.
Maintenance, repair, overhaul
(MRO)
11
Development & engineering
10
Source(s): Future of the Mexican Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2019, 10 September 2014, via PR Newswire website; Megatrends shaping the Mexican
aerospace and defense sector, 8 April 2014, via EY website; Military expenditure (% of GDP), via The World Bank website; Refurbishing the force: Mexico’s 2015 defense spending, 14 September 2015, via ElDailyPost website; Aerospace Industry in Mexico, May 2015, via PwC website; Draft
Mexican budget cuts defence in real terms, 15 September 2015, via janes website; accessed January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
54
Aerospace and Defense Country Profiles
Mexico A&D market (2/2)
Mexico has five geographic clusters that are positioned specifically to cater need of the aerospace industry
Sonora is maximizing its
potential for manufacturing
turbine and engine
components. Export value:
US$174 million Contribution to
Mexico’s export: 4 percent
Chihuahua is positioned to
become a manufacturing hub for
high-tech and dual-use goods.
Export value: US$568 million
Contribution to Mexico’s export: 1
percent
Queretaro is focusing on
complex machine
processes and MRO.
Export value: US$673 million
Contribution to Mexico’s export:
13 percent
Baja California intends to be
a leader for fuselage
systems and power plants.
Export value: US$1,391 million
Contribution to Mexico’s export: 28
percent
Nuevo Leon is a potential center of excellence
in aeronautical innovation, engineering and
manufacturing. Export value: US$555 million
Contribution to Mexico’s export: 11 percent
Source(s): Future of the Mexican Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2019, 10 September 2014, via PR Newswire website; Megatrends shaping the Mexican
aerospace and defense sector, 8 April 2014, via EY website; Military expenditure (% of GDP), via The World Bank website; Refurbishing the force: Mexico’s 2015 defense spending, 14 September 2015, via ElDailyPost website; Aerospace Industry in Mexico, May 2015, via PwC website; Draft
Mexican budget cuts defence in real terms, 15 September 2015, via janes website; accessed January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
55
South Korea
Aerospace and Defense Country Profiles
South Korea defense industry (1/2)
South Korea defense spend, 2013–20F (in US$
billion)
Defense spending by type, 2013–16F (in percentage)
47.5
33.4
2013
34.8
2014
36
2016F
2020F
31.1
28.4
30.5
33.2
68.9
70.6
69.5
66.8
2013
2014
Force operating cost
2015
2016F
Force improvement budget
Key Observations
— South Korea is ranked seventh in the world in terms of defense spending. According to the Korean Ministry of National Defense (MND), the
defense spending is expected to witness an average increase of about 7 percent between 2016 and 2020.
— The increase in defense expenditure is mainly to strengthen the defense capabilities to counter North Korean provocations. According to
South Korea 2014 Defense White Paper, North Korea has obtained significant technical capability to mount warheads on ballistic missiles and
currently involved in development of sea-launched ballistic missile capability.
— According to the plan released by MND, the operating expense is expected to hold 67 percent share in overall defense spending followed by
modernization of the South Korean armed forces with 34 percent budget.
–
The Korean government is expected to allocate KRW6 trillion for ‘Kill Chain’ missile defense system and KRW2.7 trillion to fund
Korea Air and Missile Defense (KAMD) system in order to build defense against ballistic missiles, aircraft, and cruise missiles.
–
The government is planning to increase R&D expenditure from 6.5 percent in 2015 to 8.4 percent in 2020 which is expected to
position South Korea as second highest spender on defense R&D in the world.
Source(s): South Korea Defense Market Overview, 08 June 2015, Pennsylvania Department of Community and Economic Development; South Korea announces plans to increase defence spending by 7.2% from 2016-20, 27 April 2015, HIS Jane’s 360; S.Korean President Announces Increased
Military Spending, 27 October 2015, Sputnik International; South Korea Is Planning a Huge Increase in Defense Spending, 22 April 2015, The Diplomat, accessed on 07 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
57
Aerospace and Defense Country Profiles
South Korea defense industry (2/2)
South Korea defense contractors in 2013
14.3%
9.9%
8.8%
3.3%
8
13
15.4%
14
17.6%
17.6%
13.2%
16
16
12
9
3
CBR warfare
Ammunitions
Vessels
Weaponry
Number of contracts
Engines
Aircraft guidance Communication
and electronics
Percentage increase
Key Observations
— According to Country Commercial Guide for the US Companies, released by US Commercial
Service Korea in 2014, the country is still dependent on imports which was about US$6.3 million in
2013 whereas overall defense exports were US$3.4 billion in 2013.
South Korea defense ImportExport, 2012–14
— In 2013, South Korea ranked 13th in the world in terms of defense export and is expected to
become largest East Asian arms exporter.
–
–
–
The country has recently witnessed a rise in military production for domestic and export
purpose for various regional and international market. This growth is mainly driven by
government’s initiative to decrease dependence on traditional suppliers (such as the US)
and boost domestic output.
The creation of DAPA led to an increase in export sales from US$250 million in 2006 to
US$3.4 billion in 2013, and the country is expected to increase the sales to US$4 billion by
2020.The major sales category includes high valued equipment, aircraft and naval vessels.
The Korean produced weapons are gaining visibility due to cost-effectiveness compared to
the US produced systems and the country is second to China in terms of arms export to
East Asian countries in 2014.
Others
3.4
3.6
2.4
6.3
4.8
2.2
2012
2013
Import
2014
Export
Source(s): South Korea Defense Market Overview, 08 June 2015, Pennsylvania Department of Community and Economic Development; South Korea announces plans to increase defence spending by 7.2% from 2016-20, 27 April 2015, HIS Jane’s 360; S.Korean President Announces Increased
Military Spending, 27 October 2015, Sputnik International; South Korea Is Planning a Huge Increase in Defense Spending, 22 April 2015, The Diplomat, accessed on 07 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
58
Aerospace and Defense Country Profiles
South Korea aerospace market
South Korea annual air traffic:
2013–14 (passengers in million)
South Korea registered civil aircraft: Commercial aviation market
demand (in US$ million)
2014–19F
107.1
1,314
96.6
2013
2014
655
724
2014
2015
~1,000
2019F
276
1,583
300
2013
Domestic
2014
Export
Key Observations
— South Korea commercial aviation market comprise of manufacturing of commercial aircraft parts and MRO services. The country relies solely
on the imports of commercial aircraft from other developed nations such as the US and the UK.
–
In 2013, the commercial aircraft and related product exports were about 91 percent of total aerospace imports into South Korea and
the US acts as major exporter with 75 percent overall share.
— The commercial aircraft manufacturing market and MRO market is expected to grow at a CAGR of 16.53 percent and 4.63 percent
respectively for the period 2014–18. The increase is mainly driven by following factors:
–
Increasing air traffic: According to Korea Airports Corporation, South Korea witnessed a double-digit increase of 11 percent in air
traffic in 2014 compared to 2013.
–
The increasing government support and foreign investment in the aviation sector is expected to enhance the domestic production.
–
The increase in government initiatives in airport infrastructure development is expected to lead demand for commercial aircrafts.
— Korea Aerospace Industries Ltd. is the only domestic aircraft manufacturer and total system integrator. The company is involved in the
production of military aircrafts and provide MRO service to domestic market. It is also involved in manufacturing of air frames for nextgeneration large commercial airplanes in strategic partnership with global aerospace companies and currently planning to develop
commercial aircraft in near future.
Source(s): Korea Aerospace Industry 2015, 16 July 2014, Korea Aerospace Industry Association; S.Korean President Announces Increased Military Spending, 27 October 2015, Sputnik website; Commercial Aircraft Manufacturing Market in South Korea 2014-2018, 17 April 2014, PR Newswire;
South Korea sees traffic grow by 11% in 2014; t’way air is the fastest growing airline, 18 February 2015, Anna Aero; Korea Aerospace Industries, 1 October 2013, Business Korea; Civil aircraft registered in S. Korea jumps in 2015, 26 January 2016, Yonhap News Korea website, website,
accessed 26 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
59
Aerospace and Defense Country Profiles
South Korea A&D industry
Key Regulations For Aerospace and Defense Industry
1
Defense acquisition
program act
The Ministry of National defense imposed the Defense Acquisition Program Act (DAPA) so as to regulate defense
acquisition programs which includes improvement of defense capability, development of the defense industry and
procurement of munitions.
2
Special tax treatment
control act
This act is mainly applies to aerospace companies in South Korea as the industry is considered high-level and
sensitive to technology. This includes government-led military aircraft development projects which involved.
3
Korea-US Free Trade
Agreement
According to the agreement, the US Aerospace export are duty free since 15 March 2012.
4
Aerospace Industry
Development
Promotion Act
The government has enacted this act in order to stimulate development of domestic aerospace industry this
includes
Key Players For Aerospace and Defense Industry
Korea Aerospace Industries Ltd. is the only domestic aircraft manufacturer and total system integrator. The company is involved in production of
military aircrafts and provide MRO service to domestic and planning to develop commercial aircraft. It is also involved in manufacturing of air
frames for next-generation large commercial airplanes in strategic partnership with global aerospace companies.
Source(s):South Korea Defense Market Overview, 08 June 2015, Pennsylvania Department of Community and Economic Development; South Korea announces plans to increase defence spending by 7.2% from 2016-20, 27 April 2015, HIS Jane’s 360; S.Korean President Announces Increased
Military Spending, 27 October 2015, Sputnik International; South Korea Is Planning a Huge Increase in Defense Spending, 22 April 2015, The Diplomat, accessed on 07 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
60
Singapore
Aerospace and Defense Country Profiles
Singapore defense industry
Singapore defense market size, 2013–19F (in US$
billion)
8.4
8.7
10.3
Total defense spending by type, 2014 (in percentage)
11
11.7
Capital expenditure
100% =
US$10.3
JPY0.9
JPY1.7
billion
JPY2.2
Revenue expenditure
89
2013
2014
2015
2019F
JPY1.0
JPY1.8
Key Observations
— According to the Ministry of Finance (MoF) in Singapore, the defense budget of the country witness an increase of 5.7 percent in 2015. The
increase is in line with country’s plans for national defense, which includes improving its technological edge. The country’s focus area
includes investments in cyber defenses, unnamed aerial vehicles, information technology, robotics, and artificial intelligence due new security
such as hybrid wars.
–
It is one of the largest weapon importers in the world and it is actively involved in phasing out older platforms. The Singaporean Navy
will gradually replace Fearless-class patrol vessels with eight new locally-built littoral mission vessels, ordered two Type 218SG
attack submarines, which is expected to deliver by 2020. Additionally, the army is expected to replace new protected response
vehicles, replacing the old V200 and also ordered six A330 tanker aircraft from Spain.
— Air defense: The country does not have capability to manufacture aircrafts, although it is involved in development of advanced capabilities
which includes production of components, aircraft and aero-engine MRO and the design and development of systems and technology
integration.
— Land defense: The government planning to double the number of units on wheels or tracked vehicles, such as Terrex Infantry Fighting
Vehicles in next 10 years.
Source(s): Aerospace and Defense in Singapore, January 2014, Alberta Canada website; The Singaporean Defense Industry - Market Attractiveness and Emerging Opportunities to 2019: Market Profile, 29 December 2014, Radiant Insights website, accessed on 07 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
62
Aerospace and Defense Country Profiles
Singapore commercial aviation market
Singapore aerospace industry (2012)
Singapore aerospace MRO industry, 2015 (in percentage)
6
~SG$8.7
billion
94
100% =
US$87
billion
JPY0.9
Key Observations
JPY1.0
— Singapore’s aerospace industry has grown at an average rate of 10 per
Company
cent in the last two decades, with a majority (~90 percent) of aerospace
name
companies involved in Maintenance, Repair and Overhaul (MRO) activities.
— Singapore has a robust MRO industry. It is the second largest importer of
US aircraft parts, owing to its infrastructure and favorable customs
regulation and its location in a rapidly growing Asian aviation market.
Global aerospace MRO
JPY1.7
JPY1.8
Aerospace
revenue (US$
billion)
Singapore aerospace
JPY2.2
MRO
Major category
Singapore
Technologie
s Aerospace
1.5
MRO activities, including
airframe, component and engine
MRO
Along with home-grown firms ST Aerospace and SIA Engineering,
many US and European firms have set up their subsidiaries in
Singapore, including, Rolls Royce, GE and Pratt & Whitney.
SIA
Engineering
1.05
MRO activities, including
airframe, component and engine
MRO
— According to Aviation Week, Singapore’s MRO sector, aimed at remaining
competitive is moving up the value chain and performing design,
engineering work and manufacturing activities
GE Aviation
NA
design engineering and
production of complex engine
components
Rolls Royce
NA
OEM/parts and spares
manufacturer
Pratt &
Whitney
NA
OEM manufacturer
–
–
For example, leading players such as ST Aerospace and SIA
Engineering are expanding their passenger-to-freighter conversion
business across multiple platforms.
Source(s): AEROSPACE ENGINEERING, Singapore Economic Development Board; Singapore MROs Expanding Market Segments, 23 October 2015, Aviation Week; Singapore: Aerospace Industry, US Dept of Commerce, website accessed 11 December 2015;
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
63
Canada
Aerospace and Defense Country Profiles
Canada defense market (1/3) (updated)
Canada defense spend, 2014–15 to 2018–19F (in CA$ billion)
Canada defense spend as a percentage of
GDP, 2013–17F
1.02
19.5
19.5
19.1
0.99
18.6
0.98
18.5
2014–15
2015–16
2016–17E
2017–18F
2018–19F
2014–15
Key Observations
— Department of National Defense (DND) and the Canadian Armed Forces (CAF) allocated
CA$18.6 billion for the FY16-17 and plan to allocate CA$19.5 billion for the FY18-19
— In FY16-17 budget, DND proposed to reallocate funding of CA$3.7 billion for large-scale
capital projects. This ensures funding for large-scale capital projects when needed. This
would delay execution of major projects such as the CF-18 replacements and shipbuilding.
2015–16E
2016–17F
Canada budgetary financial
resources allocation for NATO,
2016–17F to 2018–19F (in CA$
million)
43.7
43.0
42.3
2016–17F
2017–18F
2018–19F
Source(s):Feds punt DND procurement cash to 2022, acknowledge delays, ioolitics website, 22 March 2016; Federal budget 2016: Liberals indefinitely delay $3.7 billion in defence spending, Globalnews website, 22 march 2016; Defence spending expected to drop $400M — despite Liberal
pledge to keep up with Tories: sources, National post website, 08 March 2016; Chapter 6 - Canada in the World, Canada.ca website, 22 March 2016; DEPARTMENT OF NATIONAL DEFENCE, Canada.ca website; DEPARTMENT OF NATIONAL DEFENCE AND THE CANADIAN ARMED
FORCES 2016-17, Canada.ca website; Defence Expenditures of NATO Countries (2009-2016), NATO website, 04 July 2016; as accessed on 15 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
65
Aerospace and Defense Country Profiles
Canada defense market (2/3) (updated)
Canada defense spend Strategic Outcomes, Programs and Internal Services FY16–17 vs. FY17–18E (in
percentage)
2.4
2.1
6.6
FY16–17
Total allocated
Budget = CA$
18.6 billion
68.5
2.3
Defence Combat and Support Operations
1.7
2.1
6.4
Defence Services and Contributions to
Government
18.6
Defence Ready Force Element Production
Defence Capability Element Production
Defence Capability Development and
Research
1.7
18.0
FY17–18
Total planned
budget =
CA$19.5 billion
69.6
Internal Services
Key Observations
— In FY16–17, DND allocated approximately 68.5 percent of the defense budget for Defense Capability Element Production, and plans to
increase it to 69.6 percent in FY17–18.
— As per the 2016 budget, the CAF will continue to play a key role in the coalition fight against the Islamic State of Iraq and the Levant (ISIL), and
in North Atlantic Treaty Organization (NATO) assurance measures in Central and Eastern Europe.
— The budget, allocated CA$77.4 million over five years, starting FY16–17, for Shared Services to update its cyber security network, patch
existing problems and make sure government networks are protected from cyber threats, malicious software and unauthorized access.
Source(s):Feds punt DND procurement cash to 2022, acknowledge delays, ioolitics website, 22 March 2016; Federal budget 2016: Liberals indefinitely delay $3.7 billion in defence spending, Globalnews website, 22 march 2016; Defence spending expected to drop $400M — despite Liberal
pledge to keep up with Tories: sources, National post website, 08 March 2016; Chapter 6 - Canada in the World, Canada.ca website, 22 March 2016; DEPARTMENT OF NATIONAL DEFENCE, Canada.ca website; DEPARTMENT OF NATIONAL DEFENCE AND THE CANADIAN ARMED
FORCES 2016-17, Canada.ca website; Defence Expenditures of NATO Countries (2009-2016), NATO website, 04 July 2016; as accessed on 15 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
66
Aerospace and Defense Country Profiles
Canada defense market (3/3)
Key Market Players — Defense
Canada Defense Market Outlook
— The Canadian defense industry includes major US and foreign firms located
in Canada that act as prime contractors with domestic OEM suppliers.
Company
name
— Companies such as Lockheed Martin, DRS, L3, Thales, General Dynamics
Land Systems and Raytheon Canada have established their presence in the
Thales
country to position themselves for key contracts from the Canadian
Canada
government.
JPY0.9
— A majority of the global defense companies have operations in Ontario,
employing approximately 57,000 Canadians. The province is segmented into CAE
three defense clusters: London, specializing in military land vehicles,
Ottawa, in defense-related ICT and Toronto, offering aerospace and defense General
JPY1.0
ICT products.
Dynamics
— In 2014, several government agencies and Defense Acquisition Guide
(DAG) listed Naval Systems, Land Systems, Aerospace Systems, Joint and
Other Systems and Services as key industry capabilities aimed at growing
the segments and providing export opportunities.
Canada Regulatory Framework
— In 2014, the government transformed the Industrial and Regional Benefits
(IRB) policy in to Industrial and Technological Benefits (ITB) Policy aimed at
increasing domestic defense growth and investments.
— According to the new policy, the Canadian government aims at enhancing
the innovation and long-term economic impact on Canadian firms by
requiring the foreign bidders to specify the requirement and the value they
will add to the Canadian economy as a result of their bid proposals.
Land
Systems –
Canada
Revenue
(CA$ million)
Major category
~500
Avionics, Land Command Support
Systems, Counter IED systems
andJPY2.2
sensors
JPY1.7
755.6
JPY1.8
Training and simulation based
solutions for armored vehicles,
aircraft platforms
JPY2.2
766.6
C4ISR and defense electronics
Lockheed
Martin
Canada
45.1
delivery and integration of
naval combat systems, radar
platforms, avionics,
electronic warfare, manufacturing,
repair,
and overhaul.
Irving
Shipbuilding
129
Coastal defense vessels
Raytheon
Canada
— Canada’s International Traffic in Arms Regulation (ITAR), is another
regulatory issue faced by foreign companies — as it mentions of a list of
licensing requirements to import products in Canada.
202.6
Systems manufacturer and
integrator for air traffic control,
communications and maritime
surveillance
Conversion rate: US$1=EUR0.9018
Note(s): *Other companies include KF Aerospace, IMP Aerospace and Boeing Canada
Source(s): Canada Defense Market Overview; 2015, Pennsylvania’s Department of Community and Economic Development Office of International Business Development; Canada's 2015 TOP 50 Defence Companies, 2015, Canadian Defence Review website; CDR Names Thales Canada #1
Defence Company, 11 May 2015, BusinessWire website , accessed 12 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
67
Aerospace and Defense Country Profiles
Canada commercial aviation market (1/2)
Canadian aerospace industry:
2014( in CA$ billion)
22.6
2011
Industry share by type, 2014 (in
percentage)
Aerospace manufacturing revenues:
2012–20F (in CA$ billion)
27.7
MRO – 27
2014
20.6
100% =
CA$27.7
billion
Manufacturing –
73
2012
22.1
2015
23.6
2020F
Key Observations
— The Canadian aerospace industry is segmented into four subsectors: aircraft and aircraft components (42 percent), maintenance, repair and
overhaul (MRO) (31 percent), engines and engine parts (11 percent) and avionics and electrical systems (7 percent).
— The Canadian aerospace industry primarily focuses on civil aircraft manufacturing and invests approximately 20 percent of its manufacturing
activity into research and development (R&D).
–
In 2014, the Canadian aerospace industry spent approximately CA$1.8 billion on R&D, focused on the development of technologies
such as new materials (composites), improved de-icing, noise reduction, enhanced fuel efficiency and engines more capable of
operating in all weather conditions.
–
The industry is also continuing its R&D on unmanned aircraft systems (UAS) for commercial applications, such as mapping and land
surveys.
— With over 700 companies in aerospace sector, Canada is a leading manufacturer of civil aircrafts and is one of the leading trade partners with
the US, Europe, Asia and South America. In 2013, Canada are the fifth largest overall export destination for US aerospace products (at over
US$7.4 billion).
— Due to the regional trade agreements, Canada is integrated into the North American market through multimodal transport infrastructure and
duty-free access to the US, Mexico and many other global markets.
— Majority of the Canadian manufacturing hubs are located in Central Canada (Quebec) accounting for 56 percent of total manufacturing
industry and are closer to the US markets.
Source(s): The State of the Canadian Aerospace Industry, 2015, AIAC; Canada, 2015, International Trade Administration; Fastest Growing Industries: Aviation & Aerospace, 12 March 2015, PWP website; Forecast: total revenue aerospace product and part manufacture Canada 2008-2020, 2016,
Statista website; Invest in Canada,Winter 2014, Foreign Affairs, Trade and Development Canada, accessed 24 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
68
Aerospace and Defense Country Profiles
Canada commercial aviation market (2/2)
Canada Aerospace Industry Outlook
— According to a report published by Aerospace Industries Association of
Canada (AIAC), the Canadian aerospace industry is a fast growing and
innovative sector, with the manufacturing sector growing by ~29 percent and
MRO services growing by ~37 percent, between 2004–14.
— The R&D investments in Canadian aerospace manufacturing sector
increased by ~40 percent, between 2008–13. With an annual investment of
CA$1.8 billion, Canada is an industry leader in aircraft technology
development and applications.
— As a result of trade agreements, such as NAFTA, a large number of US
companies export aerospace goods to Canada. The current market
environment pose barriers to new exporters, however, the Export
Development Canada (EDC) provides commercial solutions ranging from
commercial financing support for inbound foreign investment to export
market financing of aircraft sales. Also, the Canadian Commercial
Corporation (CCC) connects Government buyers of other nations to
Canadian technology and expertise through Government-to-Government
contracts.
Recent Investments
Company name
Aerospace Industry Domestic Players
Company
name
Pratt &
Whitney
JPY0.9
Canada
(P&WC)
Bombardier
Aerospace
JPY1.0
Bell
Helicopter
Textron
Canada
Limited
Aerospace
revenue (CA$
million)
JPY1.7882
NA
JPY1.8
Rotorcraft manufacturer
Aerolia (France)
Aero-structures
GE Aviation (US)
Engine manufacturing, robotics center
UTC/Pratt & Whitney (P&W)
Engine flight test and assembly
Mitsubishi Heavy Industries (Japan)
Aerostructures
Integrated turbofan power
plant
systems, turbofan
JPY2.2
engine and engine parts
Transportation, aero-structures
& engineering services,
business aircraft and
JPY2.2 aircraft
commercial
427
Helicopters (both commercial
and military)
CAE
966
Simulation and modelling
technologies and training
services for civil aviation and
defense customers
CMC
Electronics
322
Cockpit systems integration
and avionics solutions
951
Designs, manufactures and
repairs aero-engine and aerostructure components and
assemblies in addition to
advanced products for military
and space markets
Business activity
Airbus Helicopters (France)
Major category
Magellan
Aerospace
Corporation
Source(s): The State of the Canadian Aerospace Industry, 2015, AIAC; Canada, 2015, International Trade Administration; Fastest Growing Industries: Aviation & Aerospace, 12 March 2015, PWP website; Forecast: total revenue aerospace product and part manufacture Canada 2008-2020, 2016,
Statista website; Invest in Canada,Winter 2014, Foreign Affairs, Trade and Development Canada, accessed 24 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
69
France
Aerospace and Defense Country Profiles
France defense market (1/2)
France proposed defense budget (EUR billion): 2015–
19F
35.2
33.7
32
31.4
Increase in military personnel, 2016
Military and civilian staff for
Ground combat units
cyber defense
32.7
2016
2015
2016F
2017F
2018F
JPY0.9
1,000
JPY2.2
11,000
2019F
Total defense spending by type, 2016 (in
percentage)
Key Observations
— In April 2015, the government announced to reverse the 7 percent
decline in defense spending plans laid out by the Projet de Loi de
Programmation Militaire (LPM) during2014–19.
— The announcement estimates the defense budget to reach EUR35.2
billion by 2019, representing a CAGR increase of ~3 percent during
2016–19.
— France had announced to reduce it’s defense spending to 1.2 percent of
GDP (excluding pensions), and hence planned 34,000 defense job cuts.
However, with the recent Paris attacks, the government announced to
increase the defense spending to ~1.8 percent of the GDP.
28.4
Procurement
100% =
EUR32
billion
R&D
58.4
Others
13.1
— It also announced to retain 18,500 personnel of the planned job cuts
and raise 7,000 personnel dedicated to internal security. Majority of
European countries announced an increase in defense spending in
2016, including Germany, which plans to increase spending by EUR1.9
billion over 2015–16.
Note(s):Other expenses include intelligence operations and cross functional spending
Source(s): France to increase defense spending in 2016, 2 October 2015, UPI website; France Scales Back Military Job Cuts by 7,500, 24 January 2015, DefenceNews webste; French defence spending increase boon for procurement, 21 May 2015, IHS Jane Defence Weekly website, accessed
15 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
71
Aerospace and Defense Country Profiles
France defense market (2/2)
France Defense Industry Outlook
Key Domestic Players — Defense
— The European defense sector has approximately 5,000
companies and provides employment to 400,000 people
(165,000 of which are directly involved in armaments), French
manufacturing accounts for over 25 percent of the total
European capacity.
— European and French defense sector are more focused on
increasing their exports to bridge the gaps in defense
equipment and R&D expenditure, compared to their American
counterparts.
— European and French companies are developing cooperation
programs aimed at encouraging a European armament
identity, via a single European armament supply for export to
the international market.
— The EU provides approximately 32 percent of international
arms deliveries, with the top six countries accounting for 90
percent of world arms export. France, the UK and Germany
are among the six countries, alongside the US (44 percent),
Russia and Israel.
— In 2008, the adoption by European Council of Common
Position 2008/944/CFSP “defining common rules governing
control of exports of military technology and equipment”,
enabled the EU member countries to promote transparency
and harmonization of policies on export of armaments.
Company name
JPY0.9
Thales
Revenue*
(EUR million)
JPY1.7
7,631.1
Product/services
Flight avionics systems, flight simulators
JPY2.2
for helicopters
and military aircraft, as
well as microwave and imaging
subsystems, communication systems
and radars
3,680.3
Aerospace propulsion, aircraft
equipment,JPY2.2
defense, and security,
including rocket engines, tactical
missiles and drones, avionic and
electronic solutions and services
3,674.6
Frigates, nuclear submarines,
torpedoes, anti-torpedo protection
system, maintenance and modernization
of warships
Nexter
1,256.0
Armored vehicles, artillery systems,
MBT, Battlefield
Management Systems, robots and
weapon
Systems, ammunition for land systems,
naval and aeronautic systems
Dassault Aviation
1,201.5
Military aircrafts including Rafale,
Mirage and drones
JPY1.0
Safran
DCNS
JPY1.8
Note(s): *Revenue for defense segment, Conversion rate:US$1=EUR0.9018
Source(s): Defence industries and technologies; 17 July 2013, France Diplomatie website; The Defence Industry, Investors and the Arms Trade Treaty, December 2014, International Security Department; Top 100 for 2015, 2015, DefenseNews website , accessed 14 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
72
Aerospace and Defense Country Profiles
France commercial aviation market (1/3)
Aerospace industry, 2014 (in percentage)
Commercial aviation market size, 2010–14 (in EUR
billion)
23
77
EUR60.7
billion
34
~EUR39.1
billion
Includes defense
and space
Key Observations
27.4
28.1
2010
2011
2012
37.8
39.1
2013
2014
Commercial aviation market, 2014 (in percentage)
— According to Aerospace & Defense International Trade Summit, France
is the only country (except the US) to have a full range of industry and
technical knowledge required to design and build an aircraft.
— In 2015, the commercial aviation sector accounted for 77 percent of the
industry turnover and 83 percent of the exports. The aviation export
contracts accounted for EUR32.63 billion, representing an increase of 7
percent over 2013.
— A majority of French aerospace industry manufacturers are focused on
commercial sector, that are designed for export. In 2014, the total orders
accounted for EUR73 billion, with commercial aviation sector accounting
for 84 percent of the total orders received.
Export
17
Import
100% =
EUR39.1
billion
83
— The large export market is due to the sustained buying interest in Airbus
commercial aircraft, Dassault Falcon Helicopters and Airbus Helicopters
from global airlines.
Source(s): French Aerospace & Defense Market Summary, 10 November 2015, International Trade Summit website; 2014 Review of the French Aeronautical, Space, Defence and Security Industry, 9 April 2015, defence-aerospace.com website; French Aerospace, Defence and Security Industry,
September 2015, GIFAS website, accessed on 24 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
73
Aerospace and Defense Country Profiles
France commercial aviation market (2/3)
Aerospace Industry Domestic Players
Aerospace Industry Domestic Players
— Airbus Group, along with its subsidiaries, Airbus (commercial
aircraft), Airbus Helicopters (light-to-heavy helicopters),
Dassault Falcon Jet (business jets), ATR (passenger and cargo
turboprop aircraft) accounts for the largest share in the
commercial aviation market.
— Due to the presence of domestic players in the aerospace
industry, the US manufacturers tend to enter the market through
a distributor or agent to reach out to the potential customers.
–
The Safran and Zodiac Groups are other leading
equipment suppliers, that offer products along with their
US counterparts. Other major players include Thales,
Liebherr Aerospace, Daher Group, Latécoère, Aerolia,
Sogerma, AFI EandM, Sabena Technics etc.
— The French government encourages prime contractors to
support local SMEs and provide jobs and maintain technical
know-how in France.
–
–
Company
name
Airbus
Aerospace revenue
(EUR million)
Major category
64,450
Large commercial aircraft
Airbus
Helicopters
3,656
Light-to-heavy helicopters
Dassault Falcon
Jet
556.4
High-end business jets
JPY0.9
JPY1.0
JPY1.7
JPY1.8
JPY2.2
JPY2.2
ATR
NA
Passenger and cargo turboprop
aircraft for regional transport
Daher Socata
366
Light aircraft and business
turboprops
Thales
A majority of these companies have assembly lines in
France, with parts and components supplied from
companies across the globe. The aircraft manufacturers
operate sourcing offices internationally.
Liebherr
Aerospace
The support from French government enabled the
aviation industry to gain a significant increase in trade
surplus of EUR25.2 billion in 2014 from EUR23.2 billion
in 2013.
Sabena
Technics
14,063
Flight avionics, simulation and
training
~499
Aircraft air management, flight
control and actuation systems,
hydraulic and landing gears
systems
~96
Integrated services, airframe
services such as line
maintenance and base
maintenance
Note(s): Conversion rate: US$1=EUR0.9018
Source(s): French Aerospace & Defense Market Summary, 10 November 2015, International Trade Summit website; 2014 Review of the French Aeronautical, Space, Defence and Security Industry, 9 April 2015, defence-aerospace.com website; French Aerospace, Defence and Security Industry,
September 2015, GIFAS website, accessed on 24 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
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Document Classification: KPMG Confidential
74
Aerospace and Defense Country Profiles
France commercial aviation market (3/3)
Regulations
A number of new laws and regulations introduced every year, particularly in the areas of health, safety and the environment (HSE). For instance,
the implementation of the industrial emissions directive (IED), the enactment of the SEVESO III directive in 2015, the introduction of financial
guarantees for facilities listed under environmental protection regulations (ICPE) and the requirement for companies to carry out an energy audit
by the end of 2015 and release details of their environmental and energy efficiency. GIFAS is engaged in supporting the industry to face the new
challenges by helping its members take on board and anticipate new regulations. JPY0.9
JPY1.7
JPY2.2
JPY1.0
JPY1.8
JPY2.2
Source(s): French Aerospace & Defense Market Summary, 10 November 2015, International Trade Summit website; 2014 Review of the French Aeronautical, Space, Defence and Security Industry, 9 April 2015, defence-aerospace.com website; French Aerospace, Defence and Security Industry,
September 2015, GIFAS website, accessed on 24 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
75
Italy
Aerospace and Defense Country Profiles
Italy defense market (1/2)
Italy defense budget, 2015 vs. 2014 (in EUR billion)
Total defense spending by type, 2016F (in percentage)
14.4
Personnel
0.7
8.5
13.5
19.6
JPY0.9
Procurement
JPY1.7
71.2
JPY2.2
Maintenance and
Operations
Others
2014
2015
JPY1.8
Key Observations
Italy Defense Industry
— In 2015, Italy had approved a defense budget of US$16.3 billion — In 2015, Italy’s aerospace and defense market accounted for US$17.6
billion, ranking seventh largest in the world and the fourth largest in
(EUR13.5 billion), representing a decline of ~6 percent. The
Europe.
decline in the budget represents Italy’s defense spending
constraints due its prolonged economic crisis.
— The aerospace and defense industry is Italy’s largest manufacturing
sector for high-tech integrated systems, owing to it’s investments in
— The defense ministries are attempting to maintain procurement
R&D accounting for 12 percent of the total aerospace and defense
budgets, while driving cost reductions in operations, personnel
market.
costs and force structure.
— Italian companies such as Finmeccania, Avio Aero and Fincantieri are
— In 2015, the Italian MoD announced reductions in military and
leading players offering technology in the production of commercial
civilian personnel and administrative restructuring to
and military helicopters, fixed wing military aircraft (transporters and
accommodate new equipment procurement programs. The
jet trainers), business jets, regional turbofan aircraft, Unmanned Aerial
procurement spending of EUR2.4 billion, includes the acquisition
Vehicles (UAV), avionics systems, metallurgy, naval and aircraft
of Eurofighter (EUR768 million), and the Joint Strike Fighter
propulsion, mechanics, electromechanics, electronics, software radars
(EUR582.7 million).
and air traffic control systems. Italy is also a leading provider of
— According to the 2015 defense budget report, Italy is planning to
solutions for space and satellite systems, space propulsion and
reduce the procurement budget to EUR1.95 billion in 2016 and
launchers.
EUR1.93 billion in 2017.
Source(s): Aerospace & Defence Sector Profile Rome, Italy, 2015, The Canadian Trade Commissioner Service; Italy Releases 2015 Defense Budget, 27 May 2015, DefenceNews webste; The Wales Pledge Revisited: A Preliminary Analysis of 2015 Budget Decisions in NATO Member States,
February 2015, European Leadership website, accessed 15 January 2016
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
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77
Aerospace and Defense Country Profiles
Italy defense market (2/2)
Key Domestic Players — Defense
Company name
Revenue (EUR million)
Products/services
Finmeccanica Group
12,995
The group offers expertise in a wide range of sectors operating in aeronautics, space,
defense, security, ICT, transportation and energy through subsidiaries and
partnerships in AgustaWestland (helicopters), Alenia Aermacchi (aircraft structures,
complete military jet trainer aircraft and regional jets), DRS Electronics (defense
electronics), Selex E.S. (radars, sensors and defense electronics), Oto Melara (gun
turrets), WASS (underwater defense), MBDA (missile systems), Thales-Alenia Space
(space systems) and Telespazio (satellite communications).
Fincantieri
4,456
Commercial shipyard
Piaggio Aero Industries
192
The company is involved in designing, developing, producing and offering MRO
services to business aircraft, engines and structural components. The company also
offers UAVs to Italian AirForce
AVIO Aero Group
NA
The company was acquired by GE in 2013, and has expertise in fixed wing aircraft
and helicopter engines, ship engines, energy turbines, space launchers and
propulsion
Note(s): *Revenue for defense segment; Most of the given revenues are for the year 2015
Source(s): “Defence industries and technologies; 17 July 2013, France Diplomatie website; The Defence Industry, Investors and the Arms Trade Treaty, December 2014, International Security Department; Top 100 for 2015, 2015, DefenseNews website , accessed 14 January 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
78
Aerospace and Defense Country Profiles
Italy commercial aviation market
Italian aerospace industry turnover, 2014
Italy Market Snapshot*
~US$20
billion
Company name
JPY0.9
Finmeccanica
Group
Key Observations
— According to International Trade Summit, the Italian aerospace
industry ranks 7th in the world and 4th largest in Europe.
— It represents the largest manufacturing sector in Italy in the
field of high-tech integrated systems, with an estimated
investments of 12 percent of the total turnover in R&D.
— The aeronautical sector accounts for an average 8–10 percent
of Italy’s trade balance and ~2 percent of total exports.
— The Italian aerospace and defense industry is highly
fragmented and consists of ~300 small-to-medium sized
enterprises, located in 5 main industrial clusters, including
Piedmont, Campania, Lombardy, Apulia, Umbria and Lazio
regions.
JPY1.0
Alenia Aermacchi
Aerospace
revenue
(EUR million)
JPY1.7
12,995
JPY1.8
745
Major category
JPY2.2
Helicopters,
commercial, military and
regional aircraft, defense electronics,
radars, space and satellite systems,
avionics, turbines and Air Traffic
Control (ATC)
Fixed wingJPY2.2
military, civil aircraft and
UCAVs
AgustaWestland
2,919
Designs and manufactures a wide
range of helicopters for military,
commercial and special missions
Piaggio Aero
Industries
~192
Designs, develops, produces and
conducts MRO on business aircraft,
engines and structural components
AVIO Aero Group
NA
Fixed wing aircraft and helicopter
engines, ship engines, energy
turbines, space launchers and
propulsion systems
— The Finmeccanica Group (along with its subsidiaries) plays a
leading role in the aerospace and defense sectors, closely
followed by Avio Aero (GE Aviation) and Piaggio Aero
Industries.
Note(s):*Most of the given revenues are for the year 2015
Source(s): “UK on course for aerospace boom as growing demand for air travel set to boost passengers numbers by 80% by 2034,”This is money; “THE GREAT BRITISH TAKE OFF,” adsgroup.org.uk; “Brookson Economic Outlook 2015: Aerospace and defense sector,” Broonkson, accessed 10
December 2015; “Commercial aerospace industry reports record year,” Adsadvance.co.uk, accessed 09 December 2015; “Reach for the skies,” ADS Publication; “Why aerospace and defense are Britain's engines of growth,” theguardian.com; “Britain acts to protect £25bn-a-year aerospace
industry,” The telegraph, 03 September 2015; “UK's high-flying aerospace sector gets a lift with deliveries hitting a record,” The Telegraph, accessed 08 December 2015
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
79
Australia
Aerospace and Defense Country Profiles
Australia defense spend (1/2) (updated)
Australia defense budget, 2015–16 to 2025–26F (in AU$ billion)
31.6
2015–16
32.4
34.2
36.8
39.1
42.4
45.8
49.7
52.9
55.7
58.7
2016–17E 2017–18F 2018–19F 2019–20F 2020–21F 2021–22F 2022–23F 2023–24F 2024–25F 2025–26F
Key Observations
— The defense budget for FY16–17 supports the funding needed to deliver the capability plans set out in the ‘2016 Defence White Paper’,
including plans for the Australian naval shipbuilding industry, and to support ongoing defense operations.
— According to the ‘2016 Defence White Paper’, the Australia Government plans to provide an additional funding of AU$ 29.9 billion, increasing
the country’s defense spending from AU$32.4 billion in FY16–17E to AU$58.7 billion in FY25–26F, growing at a CAGR of 6.8 percent.
— The defense budget will grow to AU$42.4 billion in FY20–21, reaching 2 percent of Australia’s GDP based on current projections.
Source(s):Australia’s Defense Budget to Jump 81% Over Next Decade, The Diplomat website, 26 February 2016; Australia to increase defence spending by $26bn amid rising regional tensions, The Guardian website, 25 February 2016; 2016 Defence White Paper, Defence.gov website, 2016;
Portfolio Additional Estimates Statements 2016-17, Defence.gov website, May 2016, Portfolio Budget Statements 2016-17 Budget Related Paper No. 1.4A, Defence.gov website, May 2016; Budget 2016-17 – Defence Budget Overview, Defense-aerospace.com website, May 2016; Defence White
Paper: Australia joins Asia's arms race with spending on weaponry and military forces to reach $195b, abc.net website, 25 February 2016; as accessed on 16 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
81
Aerospace and Defense Country Profiles
Australia defense spend (1/2) (updated)
Australia defense budget by service type FY16–17E (in percentage)
Ordinary annual
services
2.5
0.1
Outcome 1
Outcome 2
7.2
Other services
Outcome 3
FY16–17
Ordinary annual
services =
AU$30.0
billion
FY16–17
Total allocated
Budget =
AU$32.31
billion
97.5
92.8
Outcome 1 — The protection and advancement of Australia’s national interests through the provision of military capabilities and the promotion of security and
stability
Outcome 2 — The advancement of Australia’s strategic interests through the conduct of military operations and other tasks as directed by Government
Outcome 3 — Support to the Australian community and civilian authorities as requested by Government
— In FY16–17 defense budget, 97.5 percent of the ordinary annual services fund has been allocated to the defense outcome 1
— According to the “2016 Defence White Paper”, the government allocated approximately AU$195 billion over the period of 10 years for
‘investment in new and enhanced capabilities’.
–
One quarter of the AU$195 billion will be spent on expanding the capabilities of the Royal Australian Navy.
–
The government allocated 9 percent of the fund for enhancing intelligence, surveillance, reconnaissance, space, electronic warfare,
and cyber capabilities. It allocated 18 percent of the fund toward land combat and amphibious warfare upgrades. In addition, 6
percent is dedicated to air and sea lift capabilities.
Note(s): 1 Total Departmental Funding as at 2016-17 Budget, after Reconciliation of Departmental Funding after release of 2016 Defence White Paper to 2016-17 Budget
Source(s):Australia’s Defense Budget to Jump 81% Over Next Decade, The Diplomat website, 26 February 2016; Australia to increase defence spending by $26bn amid rising regional tensions, The Guardian website, 25 February 2016; 2016 Defence White Paper, Defence.gov website, 2016;
Portfolio Additional Estimates Statements 2016-17, Defence.gov website, May 2016, Portfolio Budget Statements 2016-17 Budget Related Paper No. 1.4A, Defence.gov website, May 2016; Budget 2016-17 – Defence Budget Overview, Defense-aerospace.com website, May 2016; Defence White
Paper: Australia joins Asia's arms race with spending on weaponry and military forces to reach $195b, abc.net website, 25 February 2016; as accessed on 16 February 2017.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to
obligate or bind any member firm. All rights reserved.
Document Classification: KPMG Confidential
82
February 2017
Industrial Manufacturing
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